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Economic Report
of the President

Transmitted to the Congress
January 1989
TOGETHER WITH

THE ANNUAL REPORT
OF THE

COUNCIL OF ECONOMIC ADVISERS

UNITED STATES GOVERNMENT PRINTING OFFICE
WASHINGTON : 1989

For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402







C O N T E N T S

ECONOMIC REPORT OF THE PRESIDENT

1

ANNUAL REPORT OF THE COUNCIL OF ECONOMIC
ADVISERS*

13

CHAPTER 1. FREE MARKETS, STABILITY, AND ECONOMIC GROWTH.

23

CHAPTER 2. FISCAL POLICY AND ECONOMIC EXPANSION

73

CHAPTER 3. GROWTH AND EVOLUTION OF INTERNATIONAL CAPITAL MARKETS

105

CHAPTER 4. WORLD TRADE AND ECONOMIC GROWTH

147

CHAPTER 5. RETHINKING REGULATION

187

CHAPTER 6. SCIENCE, TECHNOLOGY, AND THE U.S. ECONOMY

223

CHAPTER 7. THE U.S. ECONOMY IN THE 1980s AND BEYOND

255

APPENDIX A. REPORT TO THE PRESIDENT ON THE ACTIVITIES OF
THE COUNCIL OF ECONOMIC ADVISERS DURING 1988

291

APPENDIX B. STATISTICAL TABLES RELATING TO INCOME,
EMPLOYMENT, AND PRODUCTION

301

*For a detailed table of contents of the Council's Report, seepage 17.




(iii)







ECONOMIC REPORT
OF THE PRESIDENT




ECONOMIC REPORT OF THE PRESIDENT
To the Speaker of the House of Representatives and the President of the Senate:

It is with great pride in the accomplishments of the American
people that I present my eighth, and final, Economic Report of the President. When I took office 8 years ago there was widespread doubt concerning the ability and resolve of the United States to maintain its
economic and political leadership of the Free World. Political events
abroad seemed to demonstrate the impotence of American power,
while economic events at home raised concerns about the vitality of
our system. Throughout most of the 1970s inflation raged at unacceptably high rates, and unemployment moved upward. Stagflation, a
name invented for the era, and malaise were the words used to describe America.
Today, it is as if the world were born anew. Those who doubted
the resolve, and resilience, of the American people and economy
doubt no more. The tide of history, which some skeptics saw as
ebbing inevitably away from Western ideals of freedom of thought,
expression, and enterprise, flows in our direction. By strengthening
our military posture and reaffirming our commitment to the cause of
freedom throughout the world, we have restored respect for America
and have achieved the first arms control agreement in history to
eliminate an entire class of nuclear missiles. And by reducing taxes
and regulatory bureaucracy, we have unleashed the creative genius of
ordinary Americans and ushered in an unparalleled period of peacetime prosperity. The world today is far safer, and more prosperous,
than it was 8 years ago. And the America of today is, once again,
brimming with self-confidence and a model for other countries to
emulate. To be sure, there are challenges for the future, but I leave
office confident that, with continued cooperation between the President and the Congress, America will meet these challenges and, in
partnership with its allies, will continue to lead the world toward
peace, prosperity, and freedom.
An Historical Perspective

Barely 40 years have passed since the end of World War II, but
how the world has changed during that period. Man has walked on
the Moon; products once unimagined are now commonplace; goods
once considered luxuries are now necessities of life. Notwithstanding
these enormous changes, the prime historical reality of this period




has been the rivalry between two competing political and economic
systems. One system operates by concentrating power in the hands of
the few, by limiting personal freedoms, and by centralizing economic
decisions. At its best, it is a system of state paternalism; at its worst,
one of tyranny.
The other system believes that power emanates from the individual, not from the state; that the function of government is to serve,
not dictate to, individuals. The great democracies recognize that political and economic freedom are indivisible; policies that threaten
one of these freedoms inevitably undermine the other. These two divergent systems have vied, sometimes with words and sometimes
with swords, for the hearts and minds of the rest of the world.
At the end of World War II the outcome of this competition was,
to some, far from certain. Many intellectuals, looking back upon the
experience of the depression in the interwar period, felt that the
future was with communism. These people felt that capitalism, with
its emphasis on the individual and decentralized decisionmaking,
could not cope with the complexity of a modern economy. In the
years that followed, some countries chose state planning and state
ownership over the alleged chaos of the marketplace, while many
more countries had this authoritarian system imposed upon them.
Centralized control was especially attractive for many newly emerging
economies, which felt themselves impoverished from, and were resentful of, their colonial experience. These countries turned inward,
to highly regulated economies that shunned open markets and international trade as the path to prosperity, and instead sought self-sufficiency.
Today, few doubt which of these systems will emerge triumphant.
Comparisons of economies with common cultures and people, such
as North and South Korea, East and West Germany, or the People's
Republic of China and Hong Kong or Taiwan, uniformly show that
systems that emphasized individual initiative, open markets, and personal freedoms—as opposed to collective action—have prospered
most. Developing economies have increasingly recognized the benefits of the market system as they have undertaken reforms to reduce
the role of government and to increase the role of international
trade. Most recently, this trend has even embraced the two largest
proponents of state control, as first China and now the Soviet Union
have reluctantly recognized that the true chains on individual fulfillment are an overbearing government that destroys motivation and
freedom.
Viewed from the perspective of one who remembers well events of
40 years ago, the prosperity that we enjoy today is extraordinary.
The economic growth experienced by countries that chose the path




of economic and political freedom is virtually unparalleled in human
history. This economic success is attributable to all nations that
joined in pursuing market-oriented policies at home and in reducing
barriers to trade among nations.
Americans can take a special pride in this postwar record. American aid to Western Europe and Japan helped rebuild those war-torn
regions. America took the lead in fostering negotiations that reduced
trade barriers and created international institutions that promoted financial stability and reconstruction. Open American markets not only
benefited consumers at home, but also sped recovery abroad. And
America took the lead in preserving the freedoms and prosperity we
all enjoy. As Winston Churchill said in 1952: "What other nation in
history, when it became supremely powerful, has had no thought of
territorial aggrandizement, no ambition but to use its resources for
the good of the world? I marvel at America's altruism, her sublime
disinterestedness."
The Role of Government

As I said in my first Inaugural Address, "If we look to the answer
as to why for so many years we achieved so much, prospered as no
other people on Earth, it was because here in this land we unleashed
the energy and individual genius of man to a greater extent than has
ever been done before." The central role of government must be to
nurture this genius, not to shackle it in a morass of regulations or to
tax away the incentives for innovation.
This is not to deny that there are vital functions that a government
must perform, but it must always do so in the least intrusive and
costly fashion. The guiding philosophy of my Administration has
been to leave to private initiative all functions that individuals can effectively perform for themselves, and when government action is necessary, to use the level of government closest to the community for
all the public functions it can effectively handle. Federal Government
action should be reserved only for those functions that require national attention. In this way government will least interfere with private incentives and will be most responsive to the wishes of the
people it serves.
The Federal Government, of necessity, must provide for the national defense. Only through strength can we maintain peace and
secure freedom and prosperity for ourselves and all free nations. But
we must ensure that our defense money is spent wisely, not on porkbarrel projects, such as maintaining military bases that are no longer
necessary. This Administration, through its words and its deeds, has
shown its commitment to protecting the health and financial security
of our elderly. Similarly, the government must provide a safety net




for the Nation's poor, but it must do so in a way that promotes individual initiative. Too often, government programs, created with the
best of intentions, serve to prolong, rather than eliminate, poverty.
There are some limited circumstances in which government regulation of private activity may be beneficial. Few would doubt that some
rules are needed to protect the Nation's water and air from pollution.
However, it is imperative that all such rules and regulations be based
on sound economic principles that minimize the intrusion on private
decisions. Whether well or poorly designed, whether aimed at worthy
or dubious objectives, these rules have one thing in common: They
"tax" and "spend" billions of dollars of private funds, unconstrained
by public budget or appropriations controls.
The main role of government is to provide a stable economic environment that allows each individual to reach his or her full potential.
Individuals and businesses must be able to make long-run plans confident that the government will not change the rules halfway through
the game. Government's drain on the economy, both through its use
of resources that could be used more productively by the private
sector and through taxes that destroy individual incentives, must be
minimized. This Administration's long-term view of fiscal policy,
which abandoned the outmoded emphasis on fine-tuning the economy, has set the basis for the record peacetime expansion we currently
enjoy. This policy, in conjunction with responsible monetary policy,
has led to a sizable decrease in both unemployment rates and inflation over the past 8 years. I am pleased to say that my Administration
is the first in more than a generation that can lay claim to this accomplishment.
The government's economic role in the international sphere
should be similarly circumspect. It is the primary responsibility of
governments to promote sound and stable financial markets that encourage international commerce and to reduce barriers to trade at
home and abroad. Reducing these barriers will allow markets, not
governments, to determine the goods that society produces. Too
often policies designed to preserve jobs in one industry reduce competitiveness and employment in other industries. A creative, competitive America is the answer to a changing world, not trade wars that
close doors, create greater barriers, and destroy millions of jobs. We
should always remember: Protectionism is destructionism. America's
jobs, America's growth, America's future depend on trade—trade
that is free, open, and fair.
The Record of the Past 8 Years

In my first Inaugural Address I stated, "The economic ills we
suffer have come upon us over several decades. They will not go




away in days, weeks, or months, but they will go away." After a shaky
start, necessitated by the sorry state of the economy in 1980, we now
have a peacetime economy entering an unprecedented 7th year of expansion. The length, strength, and resilience of this expansion are
ample testimony to the wisdom of the policies that we have pursued.
During this expansion, real GNP has risen by more than 4 percent
a year, nearly double the growth rate of the previous 8 years. The
growth in employment and jobs has been phenomenal; nearly 19 million nonagricultural jobs have been created during this period, with
nearly 3.5 million new jobs created in the first 11 months of 1988.
Furthermore, this remarkable expansion has benefited all segments
of the population. While civilian employment has increased by more
than 17 percent, Hispanic employment has grown by more than 45
percent, black employment by nearly 30 percent, and female employment by more than 20 percent. The decline in unemployment rates is
equally dramatic—the overall unemployment rate has been cut in
half, down to levels not seen in 14 years. And, assertions to the contrary, the jobs created are good ones; over 90 percent of the new
jobs are full-time, and over 85 percent of these full-time jobs are in
occupations in which average annual salaries exceed $20,000.
Unlike previous experiences, this expansion has been accomplished
without simultaneously fueling inflation. The average inflation rate
during this period, as measured by the GNP deflator, has been barely
one-third the rate of inflation that prevailed in 1980. The scourge of
inflation, which served as a hidden tax on the American people and
diverted productive resources to unproductive uses, has been
brought under control here and in our major trading partners. This,
in turn, has led to a dramatic decline in interest rates, which, while
still high by historic standards, are far lower than they were in January 1981. In short, we have achieved the objectives that eluded us
during the 1970s—rapid economic growth and declining inflation
rates.
This record has been achieved not through alchemy, but by using
that good old-fashioned recipe of reducing the role of government.
Too often the government has sought to solve problems best left to
the private sector; and too often these solutions have had devastating
side effects. We have at last learned that more government is not the
solution to our problem; often it is the problem.
Our New Beginning has restored personal incentives through a
series of tax reforms and tax cuts. These reforms have reduced the
top Federal marginal income tax rate to less than one-half the level
that prevailed when we took office and decreased tax liabilities at all
income levels. The Tax Reform Act of 1986 improved efficiency by
eliminating many tax preferences that distort private decision-




making. By reducing tax rates and tax loopholes, we have encouraged people to make money the old-fashioned way—by producing
goods and services that people want, not by finding new ways to
avoid taxes. The tax reforms have increased equity as well, as an estimated 4 million low-income individuals and families have been removed from the income tax rolls by 1988. If imitation is the sincerest
form of praise, then the fact that many other major industrial powers
have also cut their tax rates is praise indeed.
These tax reforms, combined with regulatory reforms that will
result in billions of dollars of saving over this decade, have helped
spur productivity growth. Since 1981, manufacturing productivity has
grown at an average annual rate exceeding 4 percent, triple the rate
for the preceding 8 years and nearly 50 percent faster than that for
the period 1948-73. This productivity growth, combined with exchange-rate changes, has led to a surge in U.S. exports that puts to
rest the notion that U.S. industry is no longer competitive.
We have also made progress in reining in government expenditures, but much still needs to be done. We have reduced the rate of
growth of Federal spending, and over the past 5 years government
spending as a percent of GNP has fallen from 25.1 to 23.2 percent.
Significant progress has also been made in reducing the budget deficit, both in absolute terms and as a percent of GNP, but further
progress can be made only by reducing government spending. Tax
increases would only threaten the enormous progress that has been
made so far.
Our successes extend to the international sphere as well. The
strong U.S. recovery, coupled with a weaker recovery abroad, helped
create a sizable U.S. trade deficit. While the trade deficit has been
significantly reduced during the past year as a result of our surging
exports, it has served as an excuse for those seeking protection from
foreign competition. Protectionism, like most forms of government
intervention in the economy, serves only to enrich the few at the expense of the many. We have successfully resisted this protectionist
pressure, while pursuing major trade liberalization efforts abroad.
The Israel-United States Free-Trade Agreement was the first such
agreement entered into by the United States. The recently implemented Free-Trade Agreement with Canada represents an historic
step forward for two staunch allies. In addition to creating the
world's largest free-trade area between two countries and generating
large benefits for both countries, it serves as a model of what can be
accomplished in other negotiating forums. The United States remains
committed to full multilateral liberalization, as reflected in the fact
that we are the driving force behind the current Uruguay Round of
multilateral negotiations under the General Agreement on Tariffs




and Trade. While these negotiations are not scheduled to conclude
until 1990, the results of the recent Mid-term Review indicate that
they will result in significant reductions in trade barriers and a significant expansion in trade coverage.
Rather than succumbing to protectionist pressures at home, we
have vigorously combatted unfair trade barriers abroad. This was the
first Administration to seek, on its own initiative, changes in foreign
trade practices that harmed American business. These policies have
helped reduce foreign trade barriers and given American companies
a chance to compete on equal terms.
The Challenges Ahead
As proud as I am of these and many other accomplishments, I will
be the first to admit that the agenda is not yet completed. First, and
foremost, is a need to reform the budget process and to bring Federal spending under control. The large budget deficit that this Nation
faces is not a result of too few taxes, but too much spending. Strong
economic growth and the base-broadening effect of tax reform have
led to sizable increases in Federal receipts. According to current projections, these receipts will have increased by over $375 billion between fiscal years 1981 and 1989, but spending will have increased
more rapidly—by more than $450 billion over this 8-year period.
Projections indicate that Federal revenue will grow by more than $80
billion during the next fiscal year. All that is required to reduce the
deficit is to halt, or moderate, the increase in expenditures.
Gramm-Rudman-Hollings is a first step toward bringing the deficit
under control. However, further progress toward reform of the
budget process is needed. Under current practice, funding for special-interest groups is combined with vital appropriations, leaving the
President the choice between vetoing the entire package or accepting
some funding that he knows is not in the national interest. To prevent this waste of taxpayers' money, the President needs what most
governors already have—a line-item veto and enhanced rescission authority.
Moreover, the current budget process places no real restraint on
congressional appropriations, because expanded spending on one
program does not require reduced spending on other programs. Too
often the temptation is to raise taxes, not lower spending. A law that
requires a super majority of the Congress to approve waivers of
spending limits or tax limits would help ensure that taxpayers' hardearned dollars are spent wisely, and that the temptation to increase
tax burdens is resisted. Furthermore, reform of government credit
operations is required to limit new subsidies and to guarantee that
the true costs of these measures are not hidden from public scrutiny.




These reforms, together with the balanced budget amendment that I
have repeatedly endorsed, would guarantee the fiscal prudence that
is needed to sustain the dramatic expansion of the past 6 years. Limiting government expenditures would also help stimulate the private
investment that is required to ensure that the next generation of
Americans can look forward to the same increase in living standards
that previous generations have enjoyed.
Despite the enormous progress we have already made in bringing
down inflation, there is still work to be done. Inflation is a hidden,
insidious way of taxing the American people. Price stability, not
merely lowered inflation, is the key to maintaining the vigor of the
American economy and the strong international role of the dollar.
Stable, predictable monetary policy can provide the type of price stability that benefits not only our own economy, but also provides significant benefits to those developing countries that are so dependent
upon us.
Perhaps most importantly, the challenge for the future is to maintain and expand upon the progress we have made in taking economic
decisions away from the government and returning them to the private sector, where they properly belong. Governments are notoriously bad at identifying "industries of the future," and efforts to have
the government formulate and implement industrial policy must be
strongly resisted. For decades, government policies throughout the
world have distorted agricultural production and trade. Adoption of
our bold proposal to phase out these policies in the United States
and other major producing countries would result in enormous efficiency gains. And, while major deregulatory gains have been made,
much more can be accomplished. Reduced regulation of vital sectors,
including transportation, energy, and financial industries, has led to
significant increases in productivity and to sizable gains for consumers. Further deregulation of the financial sector can help preserve
this country's position as the financial capital of the world. Finally,
we must resist pressure to increase government requirements for
mandated benefits. These programs, while well-intentioned, increase
costs, reduce labor market flexibility, and reduce productivity. They
undermine the competitiveness of American business and they ultimately hurt the very people they are supposed to benefit.
Conclusion

In 8 short years, we have reversed a 50-year trend of turning to the
government for solutions. We have relearned what our Founding Fathers knew long ago—it is the people, not the government, who provide the vitality and creativity that make a great nation. Just as the
first American Revolution, which began with the shot heard 'round




10

the world, inspired people everywhere who dreamed of freedom, so
has this second American revolution inspired changes throughout the
world. The message that we brought to Washington—reduce government, reduce regulation, restore incentives—has been heard around
the world.
I leave office secure in the knowledge that these policies have
worked, and confident that this great Nation will continue to lead the
way toward freedom and prosperity for all mankind.

THE WHITE HOUSE,
JANUARY 10, 1989.




11







THE ANNUAL REPORT
OF THE
COUNCIL OF ECONOMIC ADVISERS




LETTER OF TRANSMITTAL
COUNCIL OF ECONOMIC ADVISERS,
Washington, D. C, January 6, 1989.
MR. PRESIDENT:
The Council of Economic Advisers herewith submits its 1989
Annual Report in accordance with the provisions of the Employment
Act of 1946 as amended by the Full Employment and Balanced
Growth Act of 1978.
Sincerely,




Beryl W. Sprinkel
Chairman

Thomas Gale Moore
Member

15




C O N T E N T S
Page

CHAPTER 1. FREE MARKETS, STABILITY, AND ECONOMIC GROWTH.
The Pre-war Years
The Early Postwar Period: The United States Takes the
Lead in Trade, Stability, and Growth
Sources of Economic Growth: 1948-73
Social Performance
The Seventies: Instability, Inflation, and Stagnation
Destabilizing Macroeconomic Policies
The Productivity Slowdown
Social Performance
The Eighties: Lower Inflation, Improved Incentives, and
Improved Performance
Sources of the Improvement in Output, Inflation, and
Productivity Performance
Social Performance
Conclusion
CHAPTER 2. FISCAL POLICY AND ECONOMIC EXPANSION
The Evolution of Fiscal Policy in the Postwar Era
The Growth of Government Expenditures and Revenues...
The Structure of Government Spending
The Long-run View of Fiscal Policy
Tax Policy and Its Impact on the Economy in the 1980s ....
Reduction in Typical Family Tax Burdens
Tax Reform and Capital Formation
U.S. Tax Structure and the Need for Stable Tax Rates
Controlling Federal Outlays and the Federal Budget Deficit
The Federal Debt and Deficit in Perspective
Social Security Trust Funds' Buildup and the Budget
Deficit
Institutional Change to Control Federal Outlays to
Reduce the Deficit
Conclusion
CHAPTER 3. GROWTH AND EVOLUTION OF INTERNATIONAL CAPITAL MARKETS
The Behavior of Exchange Rates




17

23
26
30
30
36
38
39
43
52
55
58
70
72
73
75
78
80
85
86
89
90
94

95
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101
103
105
107

Page

The Purchasing Power of the Dollar
Pegged and Flexible Exchange Rates: Recent Historical Experiences
The Dollar and Competitiveness
International Policy Coordination Under Flexible Exchange Rates
Exports, Imports, and Trade Balances
Measures and Meanings of External Balances
The Current Account Balance: Recent Historical Experiences
The Changing U.S. Net Asset Position
The Debt of Developing Nations
Conclusion
CHAPTER 4. WORLD TRADE AND ECONOMIC GROWTH
Economic Growth and Trade in the Postwar World
Tariff Liberalization in the Postwar Period
U.S. Postwar Objectives
.
Tariff Reductions in a Multilateral Framework: GATT
The Tradeoffs in U.S. Trade Legislation—Tariff Reductions Versus Creeping Protectionism
The Spread of Trade-Distorting Measures
Sources of Increased Protectionist Sentiment
Political Economy of Protectionism
The Special Threat of Nontariff Measures
Textiles and Agriculture—Case Studies in Protection..
Free and Fair Trade
Section 301 in Practice
Recent Modifications in the Law
Agenda for the Future
"EC 1992"—The Single Internal Market in Europe
Uruguay Round Negotiations
CHAPTER 5. RETHINKING REGULATION
Regulation: An Overview
Rationales and Motivations for Regulation
Trends in Regulation
The Effects of Regulation
The Movement Toward Deregulation
The Introduction of Executive Regulatory Oversight
Economic Regulation: Extending the Boundaries of Competition
Price and Entry Regulation
Rethinking the Limits of Natural Monopoly
Privatization
Rethinking Social Regulation




18

108
113
118
121
123
124
127
129
137
145
147
148
150
152
153
159
161
165
167
169
171
175
176
178
179
181
182
187
190
191
193
193
195
196
198
198
204
212
214

The Expanded Use of Market Incentives
The Impact of Social Regulation on Innovation
Lessons and Challenges
CHAPTER 6. SCIENCE, TECHNOLOGY, AND THE U.S. ECONOMY
Overview
International Comparisons
Science and Technology Inputs
Science and Technology Outputs
Industrial Innovation in the United States and Japan...
Government Research Policy in the United States and
Japan
High-Technology Products and U.S. Trade
Characteristics of the High-Technology Sector
U.S. Trade in High-Technology Products
Policy Issues of the 1980s and Beyond
Incentives for Private Industry
Federal Funds for Research and Development
Federal Technology Transfer
Federal Support for Industry
Potential Policy Problems
Conclusion
CHAPTER 7. THE U.S. ECONOMY IN THE 1980s AND BEYOND ........
The Lowering of Inflation in 1981 and 1982
The Expansion in Perspective
Growth in Real Output
Saving and Investment
Employment and Unemployment
Inflation and Productivity Growth
Monetary Policy
The Economy in 1988
The Impact of the Stock Market Crash
Sources of Demand
Prices, Wages, and Employment
The Impact of the Drought
Macroeconomic Policies
The Economic Outlook.....
Projections for 1990-94
Determinants of Growth 1989-94
The Legacy of this Administration
APPENDIXES
A. Report to the President on the Activities of the Council
of Economic Advisers During 1988
B. Statistical Tables Relating to Income, Employment,
and Production




19

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250
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258
259
260
265
267
269
270
271
274
276
278
279
280
283
285
288
291
301

List of Tables and Charts
Tables
1-1. Growth Rates in Real GNP/GDP, Selected Periods,
1900-88
1-2. Real Capital Stock per Worker and GDP per Capita Relative to the United States, Selected Years, 1913-87
1-3. Growth in Value Added per Hour Paid, 1948-87
2-1. Income Tax Reductions: Current Law Versus 1980 Law,
Median Income One-Earner and Two-Earner Families
of Four
2-2. Growth of Real Gross Domestic Investment in the
Seven Summit Countries, 1965-86
,....
2-3. Estimated Average Effective Tax Rate on Investment
2-4. Deficit Targets Under the Gramm-Rudman-Hollings
Act, 1990-93
2-5. Unified Budget Impact of Projected OASDI and HI Surpluses (Excluding Interest), Selected Years, 19882065
3-1. The Dollar and Import Prices Since 1980
3-2. Currency Denomination of International Bond Issues,
1983-88
,
4-1. Output and Export Growth, 1870-1987
4-2. Tokyo Round Tariff Cuts by Stage of Processing, Selected Countries
4-3. Tokyo Round Tariff Cuts by Industry for United States,
European Community, and Japan
4-4. Growth of Subsidies in Selected OECD Countries,
1960-86
4-5. Industrial Country Imports Subject to "Hard-Core"
Nontariff Measures, 1981 and 1986
5-1. Deregulatory Initiatives, 1971-88
'.
7-1. Comparison of Current and Past Expansions
7-2. Economic Outlook for 1989
7-3. Administration Economic Assumptions, 1988-94
7-4. Accounting for Growth in Real GNP, 1948-94
Charts
1-1. Change in Unemployment Rates in the Seven Summit
Countries
'.
1-2. Real Family Income Relative to 1948 Levels
1-3. Poverty Rate, All Persons
1-4. Unemployment Rate and Inflation Rate at Business
Cycle Peaks, and Current Rates
1-5. Alternative Rates of Return on Capital Investment




20

27
31
67

89
90
93
95

100
119
136
150
156
157
162
164
196
261
281
284
286

26
37
39
40
47

Charts

1-6. Output per Hour and Capital Stock per Worker, Manufacturing and Nonmanufacturing
1-7. Actual and "Predicted" Proportion of Families with
Income Below $10,000 in 1987 Dollars
1-8. Composition of Families in Poverty
1-9. Gross and Net Investment Shares of GNP
1-10. Real GDP per Employed Person in the Seven Summit
Countries, 1987..
2-1. All Government and Federal Expenditures as Percent of
GNP
2-2. Federal Receipts and Expenditures as Percent of GNP ...
2-3. Federal Investment Outlays as Percent of GNP
2-4. Federal Expenditures by Type
2-5. Debt and Deficit in the Seven Summit Countries in
1987
3-1. Nominal and Real Exchange Rate
3-2. Exchange Rates and Relative Prices
3-3. Net Exports and the Current Account Balance
3-4. U.S. Net Asset Position Abroad as Percent of Net
Wealth
3-5. Asset Earnings Flows
3-6. Foreign Direct Investment Position in the United States.
4-1. U.S. Tariff Rates, 1860-1987
5-1. Real Federal Outlays for Regulatory Activities
5-2. Bank and Thrift Failures
6-1. The National R&D Effort
6-2. National R&D Expenditures, Selected OECD Countries .
6-3. Federal and Private Funding of Research and Development
6-4. Federal Obligations for Research and Development by
Major Agency
7-1. Actual and Target M2 Growth
7-2. Gross Saving and Investment as Percent of GNP
7-3. Expansion Duration and Inflation Change
7-4. Hourly Compensation and Prices




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CHAPTER 1

r'ree Markets, Stability, and Economic
Growth
THE FOUR DECADES SINCE WORLD WAR II stand out as a
period of remarkable growth for the developed market economies.
More people in more countries increased their standard of living
than in any other era. Real gross national product (GNP) per capita
in each of the major industrialized nations has grown significantly
faster since 1948 than before World War II. This success is based in
part on reliance by the United States and the other nations on private incentives and free markets, with governments attempting to
provide both a stable macroeconomic framework and a stable world
political environment. The result has been strong economic growth
and large improvements in social conditions for the United States
and other nations.
In the United States real income per capita and real reproducible
tangible wealth per capita more than doubled between 1948 and
1987. These gains were widespread, with real family income more
than doubling for both those at the highest and the lowest fifth of
the income distribution. The poverty rate dropped from 30.2 percent
in 1950 to 13.5 percent in 1987 (8.5 percent if noncash benefits are
included). Most of the drop occurred before the rapid rise in transfer
programs. Life expectancy rose from 67 to 75 years. Increases in
wealth, pensions, and insurance allowed more people to enjoy these
extra years; the labor force participation rate of those 65 and over
fell from 27.0 to 11.1 percent. The average workweek fell from 42.8
to 38.7 hours. The percentage of the population with private health
insurance increased from 51 in 1950 to 77 in 1985. Most measures of
environmental pollution also showed improvement; parts per metric
ton of suspended particulates in the air fell from 24.5 million in 1950
to 7.3 million in 1985.
The current expansion represents a continuation—after the stagflation of the 1970s and early 1980s—of this extraordinary postwar
record of sustained growth. During this recordbreaking peacetime expansion the trend toward higher unemployment and inflation that
characterized stagflation has been reversed. (A discussion of the accomplishments of the current expansion appears in Chapter 7.) The




23

success of the current expansion rests upon a philosophy that has
served the United States well in the past: the private sector is inherently stable and is the fundamental source of economic growth. Government's appropriate role is to foster the inherent dynamism of the
private sector. It can do so by improving private incentives and providing a framework for economic and political stability, basic public
infrastructure, and a social safety net and by promoting open and
flexible markets.
As this chapter and this Report demonstrate, during the postwar era
and throughout the 20th century, when government has confined
itself to this role, strong increases in standards of living have been
recorded. In contrast, when government has departed from its appropriate role, incentives have become distorted and the United States
and other countries have recorded poorer economic performances.
The other chapters of this Report expand on these themes in various areas of policy that have contributed to the sustained growth
during the postwar period. The chapters address the contributions of
fiscal policy (Chapter 2), international trade and finance (Chapters 3
and 4), regulation (Chapter 5), and science and technology (Chapter
6) to the outstanding economic performance in the postwar period
and especially in the 1980s.
Lessons from Past Policy: The Employment Act of 1946 arose out of
the policy mistakes of the Great Depression. The act was amended in
1978 as a result of dissatisfaction with increasing unemployment and
inflation. The act charges the Federal Government with promoting
maximum employment, production, and purchasing power, with
"maximum reliance on the resources and ingenuity of the private
sector." How best to achieve these goals has been the central question that economic policymakers have addressed during the postwar
period. Government can make, and has made, two major mistakes in
promoting these goals. Policy can be so passive that it is procyclical,
exacerbating cyclical downturns. By contrast, policy can be so active
that it increases instability and uncertainty.
The Great Depression provides a critical example of the first mistake. Throughout the decline, the Federal Reserve failed to function
as the supplier of liquidity. The money supply contracted along with
the economy, contributing to the economic collapse: employment,
production, and real incomes plummeted.
The 1970s provide an example of the second mistake, with policy
misperceiving short-term events for lasting changes. Stop-go policies,
which employed monetary and fiscal policy to react to the oil crisis
and other transitory shocks, resulted in higher unemployment and
higher inflation. High and variable inflation, interacting with the Tax
Code, reduced incentives, productivity, and real income growth. De-




24

spite the positive aims of the policies, problems of information, lags,
and uncertain response caused the stabilization policies to be destabilizing. Policy fell short of the goals of the Employment Act: unemployment rose while productivity growth and real family income stagnated.
Policy in this Administration: The goal of this Administration has been
to reinvigorate the private sector by limiting the size of the Federal
Government, improving incentives through tax cuts, improving
market flexibility through deregulation, avoiding new structural rigidities, and encouraging noninflationary monetary policy. As a result
the economy has rebounded from the stagflation of the 1970s. Inflation and unemployment are down and productivity and real family
income are up. The social safety net has been maintained and reforms have been introduced to help the disadvantaged become selfsufficient and escape the dependency trap of poverty.
Economic performance during the current expansion is particularly
impressive relative to that of the major U.S. trading partners, particularly the nations of Europe. These countries have also achieved lower
inflation but have had little success in reducing unemployment,
which traditionally has been much lower than U.S. unemployment
(Chart 1-1). The United States in the 1980s has reestablished itself
as the role model for economic policy and sparked a worldwide tax
revolution, with all seven of the major industrialized nations (G-7)
that have participated in the recent economic summits reducing their
marginal tax rates.
Policy in the Future: It is said that the past is prologue. This chapter
endeavors to identify the common threads that underlie the more, as
well as the less, successful periods in 20th century U.S. economic history, paying particular attention to the postwar period and the critical
role of stable policy, taxes, and inflation on private incentives, investment, productivity, and standards of living. It looks at the importance
of free trade, highlighting the protectionist actions during the 1920s
and early 1930s that contributed to the depression of 1933. The
chapter looks at the postwar distribution of income, examining the
relative contribution of economic growth to improvements in the
standard of living. The discussion also identifies some groups whose
postwar experiences have been somewhat better or somewhat worse
than the average. The role of policy in this period is examined.
This review of U.S. economic history suggests that the more successful periods were grounded in a reliance on private markets, a
commitment to free trade and the reduction of trade barriers, the development of institutions to provide stability in domestic and international financial markets, strong private investment supplemented by




25

Change in Unemployment Rates in the Seven Summit Countries
Percentage point change
CHANGE IN CIVILIAN UNEMPLOYMENT RATE 1981 TO 1987

3.1

1.8

1.4
0.7

Y///////7/A

-0.2

-1.4
-2
United
States

France

West
Germany.

Italy

Canada

Japan

United
Kingdom

Note.—Data for West Germany and Italy adjusted for discontinuities.
Source: Department of Labor.

government investments in basic infrastructure, and changes in tax
laws and regulations to improve private incentives.
Looking to the future, the U.S. economy should continue to rely
on the strength of private markets while promoting a framework for
domestic and international stability. Work remains on achieving noninflationary economic growth, lowering trade barriers, avoiding isolationism and protectionism, and improving incentives for business investment. The deregulatory effort should also move forward, and
mandated benefits and other new laws and regulations that reduce
market flexibility should be avoided. Finally, the budget deficit must
be reduced by slowing Federal Government spending and focusing
spending on investments in infrastructure and on providing basic
public services.
THE PRE-WAR YEARS
The pre-war years offer two examples of the growth potential of
private markets when provided with what, for early U.S. economic




26

history, could be described as relative stability. They also contain one
strong example of the effect of instability in government policy.
The period from 1900 to 1913 was one of vigorous economic
growth in the United States. Moderate growth in the supply of gold
sustained expectations of long-term price and economic stability. Despite bank runs and financial "panics," which were recurring problems that plagued the U.S. economic system prior to World War II,
money growth was adequate to support growth and trade without deflation. Strong growth in trade and abundant opportunities for expansion buoyed business expectations and encouraged investment.
The United States enjoyed particularly robust growth, exploiting its
natural resources, embarking on large private and public investments, obtaining advantages from trade and high rates of immigration, and achieving economies of scale from its large and growing
market. Real GNP grew at a 3.9 percent annual rate and real GNP
per capita grew at a 2.0 percent annual rate (Table 1-1), well above
the long-term trend for the United States.
TABLE \-\.—Growth Rates in Real GNP/GDP, Selected Periods, 1900-88
[Average annual percent per year]
Period

United
States

Japan

West
Germany1

United
Kingdom

France

Italy

Canada

Real GNP/GDP
1900 to 1913
1920 to 1929
1930 to 1938

3.9
4.3
.4

2.5
3.4
6.3

3.0
4.9
4.4

1.5
1.9
2.2

1.7
4.9
-.1

2.8
3.0
2.3

5.5
4.0
.3

1948 to 1973
1973 to 1981
1981 to 1988

3.7
2.1
3.0

9.1
3.7
3.8

7.0
1.9
1.8

3.0
.7
2.9

5.3
2.6
1.8

5.7
2.6
2.3

5.1
3.8
3.1

1900 to 1938.
1948 to 1988
1900 to 1988

2.3
3.3
3.1

3.5
7.1
4.2

2.4
5.0
2.9

1.3
2.6
1.8

1.1
4.1
2.4

2.0
4.4
2.9

2.8
4.5
4.0

1900 to 1913
1920 to 1929
1930 to 1938

2.0
2.7
-.3

1.2
2.0
4.8

1.6
4.2
3.8

0.7
1.4
1.8

1.5
4.3
-.2

2.2
2.1
1.5

2.6
2.2
-.8

1948 to 1973
1973 to 1981
1981 to 1988

2.2
1.1
2.0

7.8
2.7
3.2

5.7
2.0
1.9

2.6
.7
2.7

4.3
2.1
1.3

5.0
2.2
2.0

2.8
2.5
2.2

1900 to 1938
1948 to 1988
1900 to 1988

.9
1.9
1.7

2.2
5.9
3.0

1.9
4.2
2.7

.9
2.2
1.5

.9
3.3
2.0

1.2
3.9
2.2

.8
2.7
2.1

Real GNP/GDP per capita

,

1
Pre-war estimates for West Germany are adjusted for territorial change.
Sources: 1988, estimates derived by Council of Economic Advisers; for the United States, 1900-87, Department of Commerce
(Bureau of Economic Analysis); for other countries, 1900-50, A. Maddison, Phases of Capitalist Development, and 1950-87,
unpublished data from Department of Labor (Bureau of Labor Statistics).

In 1913 U.S. capital per worker, GNP per capita, and productivity
were higher than in the other major industrialized nations; average
real output per person hour in the other six major industrialized nations of the world was 57 percent of U.S. productivity. Between 1900
and 1913 U.S. real GNP growth was higher than in the other major




27

industrialized nations except Canada, which shared the high investment rates and other attributes that benefited the United States
(Table 1-1).
Improvements in economic conditions in the United States also
had a large effect on social conditions. Higher real incomes were accompanied by better nutrition, better housing, better education, improved working conditions, increased numbers of health providers,
and increased use of medical services for a large proportion of the
population. Public health investments supplemented these improvements. Between 1900 and 1913 the death rate fell nearly 20 percent,
from 17.2 to 13.8 per thousand. By 1986 the rate was down to 8.7
per thousand.
After a relatively severe recession following World War I, growth
resumed in the 1920s. Money supply growth held at a relatively
steady noninflationary rate—prices declined at a gradual 2.1 percent
annual rate—and some observers have described the period as the
high tide of the Federal Reserve System. Major reductions in tax
rates improved private incentives and encouraged growth and investment during this period.
Between 1920 and 1929, the net stock of business capital increased
more than 20 percent, while the net stock of government and institutional capital increased more than 50 percent. Real GNP grew at a
4.3 percent annual rate and real GNP per capita increased at a 2.7
percent annual rate, significantly above long-term trend growth for
real GNP and GNP per capita. During this period death rates
dropped another 8.5 percent, for a total drop of 31 percent since
1900.
Despite the relatively good domestic performance in the 1920s,
problems began to arise on the international front. Britain's relative
decline left a gap in trade and monetary policy that remained unfilled. The United States was reluctant to take over this role from the
United Kingdom and entered a period of isolationism. With no clear
worldwide framework replacing the pre-1914 arrangements, each
nation pursued its narrow self-interest, particularly in the 1930s.
The Allies did little to aid the defeated central powers to recover
from World War I. Their requirements for heavy war reparations
contributed to hyperinflation in Germany.
Trade relations also suffered from isolationism during this period.
In 1922 the Congress passed the Fordney-McCumber Act, raising already high tariff barriers. The tariff rate on dutiable imports rose
from an average of 16.4 percent in 1920 to 44.7 percent by 1930.
The Smoot-Hawley Act of 1930 raised tariffs even higher and ushered in an era characterized by beggar-thy-neighbor policies; by 1932
the tariff rate on dutiable imports reached 59.1 percent. Other coun-




28

tries retaliated and some moved toward autarky; still others formed
rival trading blocs. Global protectionism sparked by U.S. actions contributed significantly to the severity of the Great Depression.
By 1931 the United Kingdom had abandoned the gold standard.
During the rest of the decade other countries, including the United
States, followed. Exchange rates were not permitted to fluctuate
freely, nor were they fixed to gold or other commodities. Countries
used devaluation and exchange-rate market intervention to improve
their relative positions.
Paralleling and contributing to these failures in international economic policy were failures in domestic monetary and fiscal policy.
Appropriate monetary policy could have reduced the severity of the
Great Depression and shortened its duration. Instead, as the economy contracted, the Federal Reserve clung to a policy that resulted in
a falling money supply. Money moved in a procyclical manner providing only sufficient liquidity for the much reduced needs of trade
and doing little to stem the collapse of banks that further reduced
the money supply and economic activity. Between 1929 and 1933 the
money supply contracted by nearly one-third and prices dropped by
one-fifth.
During the 1930s fiscal actions also erred, reacting to the temporary fall in revenues resulting from the contraction. In 1932, with unemployment at 23.6 percent, the Revenue Act of 1932 introduced the
largest peacetime tax increase enacted up to that time in U.S. history.
The effect of these policies was staggering. Real investment plummeted and the net business capital stock declined by 9 percent between 1929 and 1933. Over the same period real GNP and real per
capita GNP fell by more than 30 percent. Unemployment increased
from 3.2 to 24.9 percent. Trade collapsed as real exports declined 46
percent and real imports by 35 percent.
Although the most important policy events of the Great Depression
were protective tariffs and the failure of monetary policy, bank runs
contributed to the severity and duration of the 1930's decline, as
they had in several earlier periods. As a consequence, the Congress
established institutions to mitigate the effect of recessions and reduce
their severity. Among these were unemployment insurance and the
Federal Deposit Insurance Corporation (FDIC) in 1933. The FDIC
provided assurance that the Federal Government would guarantee a
fixed amount of individuals' deposits. The insurance system later developed serious flaws and encouraged excessive risk-taking by banks.
At the time, however, it provided a crude solution for bank failures
that had characteristically occurred during recessions in the United
States.




29

THE EARLY POSTWAR PERIOD: THE UNITED STATES TAKES THE LEAD IN
TRADE, STABILITY, AND GROWTH

The 1950s and 1960s brought a period of stability, trade expansion, and economic growth that stands in marked contrast to the violently destabilizing policies and protectionism of the 1930s. The destruction in Europe and Japan during World War II left the United
States as the clear political and economic leader of the world, with a
higher capital stock and GNP per capita than the other major nations
of the world. From this position of leadership, the United States
worked toward a stable, free-market framework of domestic and
international rules and institutions.
Between the postwar cyclical peaks of 1948 and 1973, real GNP in
the United States grew at a 3.7 percent annual rate while in the other
six summit nations it grew at an average 5.9 percent annual rate.
Growth in the United States and other countries was strong relative
to historical growth. The U.S. early postwar growth rate of 3.7 percent is significantly above both the long-term trend 1900-88 growth
rate of 3.1 percent or the pre-war 1900-38 rate of 2.3 percent. Investment was strong and wealth per capita, as measured by the net
stock of reproducible fixed capital in 1982 dollars, rose at a 2.4 percent annual rate. Productivity grew at a 2.9 percent annual rate and
the civilian unemployment rate averaged 4.8 percent.
In contrast to the deflation of the interwar period, a moderate
trend toward inflation appeared in the developed nations in the postwar period. In the United States the average annual rate of inflation
as measured by the change in the GNP implicit price deflator between
1948 and 1973 was 3.0 percent.
SOURCES OF ECONOMIC GROWTH: 1948-73

A Large and Growing Capital Stock: World War II devastated the
economies of Japan and Europe. Their capital stocks were greatly reduced as was their labor force. The United States, which had higher
investment rates than other nations throughout most of the 1900s,
had continued to invest and its capital stock continued to grow
during the war, although at a reduced rate, and emerged from World
War II with an even larger capital stock in absolute size and relative
to other countries. By 1950 the U.S. gross stock of nonresidential
capital per worker was larger than that of other major industrialized
nations, and their average capital to labor ratio was less than one-half
the U.S. capital to labor ratio (Table 1-2). Partly as a result, U.S.
GDP per capita was also more than twice the average for the other
six major industrial nations.
The United States was the world's technological leader. Its technology was generally the best-practice technology available. Produc-




30

TABLE 1-2.—Real Capital Stock per Worker and GDP per Capita Relative to the United States,
Selected Years, 1913-87
[United States « 100]
Year

United
States

West
Germany1

Japan

United
Kingdom

France

Italy

Canada

Real gross nonresidential fixed capital stock per worker
1913
1950
1973
1984

100.0
100.0
100.0
100.0

9.0
15.5
46.9
90.0

60.0
50.8
88.4
111.0

60.8
49.8
58.6
65.0

49.3
56.0
78.2
101.0

24.0
33.3
55.6
(3)

£1

50.0
33.7
61.3
67.2
66.8

81.3
70.3
84.1
94.6
94.8

98.4
I3)

Real gross domestic product per capita4
1913
1950
1973
1981
1987

100.0
100.0
100.0
100.0
100.0

23.4
16.1
59.2
67.6
71.8

59.5
36.1
68.3
73.7
72.6

85.4
60.5
66.2
64.6
67.0

62.4
42.8
66.9
73.0
69.8

1

Pre-war estimates for West Germany are adjusted for territorial change.
Not available.
Latest data available are for 1978: Italy, 63.1. and Canada, 104.8.
4
Based on purchasing power parity exchange rates.
Sources: Capital stock per worker: A. Maddison, Phases of Capitalist Development and "Growth and Slowdown in Advanced Capitalist
Economies," Journal of Economic Literature (June 1987); GDP per capita: Department of Labor (Bureau of Labor Statistics).
2

3

tivity per man-hour of the other six major industrialized nations of
the world averaged 43 percent of U.S. productivity in 1950. Before
the war in 1938, the average productivity for the other nations had
been 57 percent of U.S. productivity.
Improved transportation, lower tariffs, and U.S. economic aid and
technological assistance through programs such as the Marshall Plan
helped the war-ravaged nations to bridge the technology and productivity gap. With these changes, literate and trained labor forces, and
U.S. assistance, the other nations were able to raise their productivity
by increasing their rate of investment in new plant and equipment
embodying U.S. technology. Although this investment did require the
development of adaptive technologies to modify U.S. technologies to
their own special needs, it was a much less expensive, less risky, and
less time-consuming process than developing their own new technologies.
The availability of this U.S. technology in combination with low
capital-labor ratios produced high returns to new capital investment
abroad. Between 1950 and 1973 capital per man-hour by the next six
largest industrialized nations grew over one and one-half times as fast
as U.S. investment, and their productivity grew twice as fast. Prior
to World War II, U.S. investment rates had been higher than those
for most other industrial nations and U.S. productivity growth from
1900 to 1950 was roughly 50 percent higher than the average for the
other major industrialized nations.
No parallel rapid acceleration occurred in U.S. productivity growth
during the first 20 years of the postwar period. As the technological
leader, U.S. productivity growth had been relatively steady during the




31

1900s. U.S. firms generally used best-practice technology and since
there was no backlog of technology to exploit, increases in productivity were largely restricted to the rate of new technological innovation.
Relatively good rates of business investment between 1948 and
1973, however, resulted in the net stock of business fixed capital
growing at a 3.9 percent annual rate and net capital per worker at a
2.4 percent rate. Faster growth occurred in the early part of the
period and slower growth after 1966: net private capital per worker
grew at a 2.5 percent annual rate between 1948 and 1966, and
slowed to 2.1 percent between 1966 and 1973.
These increases in private business capital were supplemented by
increased government investment in physical and human capital infrastructure. Work began on the Federal Interstate Highway System
in 1956 and spending on it peaked in the mid-1960s. Between 1948
and 1973, the stock of educational structures also grew rapidly in response to the increase in the school-age population. Investments in
sewer systems and water supply facilities responded to increasing urbanization, and investments in public airports responded to increased
air travel. Between 1948 and 1973 the net stock of real nonmilitary
government capital grew at a 4.0 percent annual rate, with investment peaking in the mid-1960s.
Paralleling these trends in investment, productivity grew at a 3.3
percent rate between 1948 and 1966 and at a 2.1 percent rate between 1966 and 1973. Over the entire period U.S. productivity rose
at a solid 2.9 percent annual rate.
The United States also led in the first 25 postwar years in developing human capital. The Nation's educational attainment levels were
above those of the other six summit nations, although the educational advantage of the United States over other nations appears to have
been smaller than its productivity and technological advantage. Between 1948 and 1973 the percentage of the U.S. population over 17
years of age with high school degrees increased from 52.9 to 74.3
percent, with the largest increases occurring between 1948 and the
mid-1960s.
Trade Policies: As part of its commitment to freer markets and more
open trade, the United States pushed for rules under the General
Agreement on Tariffs and Trade (GATT) to provide a framework for
multinational negotiations and the gradual reduction of tariff barriers. At first, GATT was extremely successful because its members
accounted for 80 percent of world trade. Tariff barriers in the major
industrialized countries and the less developed countries fell dramatically. In the United States the average ad valorem tariff fell from an
average rate of 59.1 percent on dutiable imports in 1932, after the
disastrous Smoot-Hawley Act, to 13.1 percent in 1950, and dropped




32

further to 5.2 percent by 1987. (Chapter 4 discusses tariffs and international trade policy in more detail.)
The United States also did much to help other industrialized nations redevelop their economies and to help the less developed nations grow. In contrast to the reparations imposed following World
War I, the United States, through the Marshall Plan, helped the European nations to increase production, restore internal financial stability, and achieve the benefits of scale economies and efficiencies
that come from specialization and competition. Later the United
States also supported the development of the European Community
(Common Market) to continue the movement toward a larger and
more efficient market in Europe.
During the postwar occupation the United States helped Japan to
reorganize its government and redevelop its economy. Throughout
the postwar period the United States also did much through direct
aid and through various organizations to improve the position of the
developing nations in Latin America, Africa, and in the Middle and
Far East.
Accompanying these trade development policies were lower costs
of transport and a faster flow of technological know-how from the
United States to other nations. The result was an explosion of trade
and growth.
Financial Stability: Paralleling the development of GATT and the reduction of tariff barriers was the development of a new monetary
standard to facilitate exchange and financial stability. With the problems associated with the collapse of the gold standard on their
minds, financial officials of the Allied Powers met at Bretton Woods,
New Hampshire, in 1944 to plan the creation of the International
Monetary Fund (IMF). They agreed on an international system of
pegged but adjustable exchange rates that attempted to balance the
need for stable fixed exchange rates with the desire to accord a
higher priority to domestic stability.
Through the IMF, loans were made available to countries with
temporary balance of payments problems. Surplus countries lent to
deficit countries to avoid the need for contraction in deficit countries
and the concomitant reduction in trade and demand for the rest of
the world. Countries that chose to keep policy consistent with that of
the United States could achieve both stable exchange rates and low
inflation by pegging their currency to the U.S. dollar. Countries with
persistent problems were expected to adjust their exchange rates.
In the early years of the system, good U.S. economic growth and
moderate U.S. monetary growth allowed the U.S. dollar to serve as
an international currency, providing a more stable payment system
than in the interwar years to finance expanding trade; opportunities.




33

Under the new dollar-gold exchange standard the United States
maintained convertibility of the dollar at $35 an ounce with other
central banks. Other nations fixed their currencies to the dollar, thus
providing international convertibility of major currencies by the late
1950s.
This system was not perfect but it worked well for a time. Flaws
began to be evident in the 1960s. The system had no method for distinguishing between permanent and temporary balance of payments
imbalances, and as a result could not prevent several "crises'* with
disruptive changes in currency values. More importantly, increases in
U.S. monetary growth during the 1960s put pressure on other countries to buy dollars, increasing their own money supply, to prevent
their exchange rates from appreciating. This spread inflation to other
countries. Inflation and excessive monetary growth raised doubts
about the U.S. ability to maintain convertibility. Other countries were
reluctant to revalue their currencies upward against the dollar and
used trade and capital controls to limit capital flows and reduce balance of payments pressures.
The Bretton Woods Agreement of exchange rates collapsed in
1971, and by 1973 had been replaced by the flexible exchange-rate
system that exists today. The lesson from this experience is that a
monetary system based on pegged but adjustable exchange rates
cannot work without all participants following compatible policies to
achieve common rates of inflation.
Relative Stability in Macroeconomic Policy: During this period the
United States established policies dedicated to maintaining full employment and avoiding the procyclical swings in fiscal and monetary
positions that had contributed to the severity of the previous business cycles. Although the period was not free from policy errors,
from today's perspective the result—whether intended or unintended—was relatively steady moderate growth in money until the mid1960s, and fiscal integrity in taxes and spending.
Prior to the postwar period severe depressions had occurred in
1867, 1873, 1893, 1907, 1920, and 1929 according to the chronology
developed by the National Bureau of Economic Research. Including
recessions as well as depressions, the length of the average contraction between 1854 and 1945 was 21 months, with a contraction occurring on average once every 4 years. During the postwar period the
length of the average contraction has been halved to 11 months with
a contraction occurring on average once every 5 years.
Contractions have also become less severe. In contrast to the 25
percent unemployment rate in 1933, the highest unemployment rate
during the postwar period has been 10.8 percent. The human costs
associated with postwar unemployment were also lower than in earli-




34

er periods. Whereas in earlier periods the unemployed person was
usually the head of the household, in the postwar period many of the
unemployed were likely to be secondary wage earners or teenagers
working part time. Also, in earlier periods no unemployment insurance system softened the impact of temporary layoffs.
Between 1900 and 1938 real GNP grew at a 2.3 percent annual
rate and real GNP per capita grew at a 0.9 percent annual rate. Between 1948 and 1973, without the large losses associated with the
depression, real GNP grew at a 3.7 percent annual rate, and, despite
the baby boom, real GNP per capita grew at a 2.2 percent annual
rate.
Part of the improvement in growth and reduction in cyclical instability was the result of the introduction of built-in stabilizers and
other institutional changes, but a part was attributable to improvements in monetary policy. The Federal Reserve did not repeat the
dramatic contraction of the money supply of the 1930s. Instead,
policy tended to err in the opposite direction, producing inflation.
In the period during and immediately following World War II, the
Federal Reserve tried to peg long-term Treasury bond rates so as to
keep Treasury debt-service costs low. After an increase in inflation at
the start of the Korean war the policy was abandoned in 1951. It was
followed first by a period of controlling net free reserves, and later
by a period of targeting short-term interest rates.
In the 1960s monetary policy shifted. The focus on interest rate
control interacted with changes in aggregate demand to produce
faster growth in the money supply and higher inflation. Growth in
M2 (a measure of the money stock) increased from 5.3 percent between 1951 and 1960 to 8.1 percent between 1961 and 1973. Money
growth also became more volatile, particularly in the latter half of the
1960s, and the variance of M2 growth increased from 1.6 percentage
points in the 1950s to 6.7 percentage points between 1960 and 1973.
The Kennedy-Johnson Administrations responded to increased inflation by setting up an informal system of price and wage control.
Guideposts attempted to put a lid on prices and hold wage increases
to the average rate of productivity growth. The plan was based on
the conjecture that inflation could be controlled by preventing certain sectors, such as steel, from setting the pace for large wage and
price increases in other industries. The guideposts ultimately failed
when increases in money and aggregate demand caused a broadbased increase in prices. The clear lesson was that inflation responds
to maintained money growth, and control of prices and wages by
means of jawboning is of little benefit.
The Administrations of the 1960s also introduced an era of increased emphasis on discretionary fiscal policy. Confidence in short-




35

term stabilizing fiscal mechanisms was high. Policymakers believed
that more active use of short-run discretionary policies could have
avoided, or significantly tamed, even the moderate cycles of the
1940s and 1950s. They intended to lower unemployment and raise
real GNP growth without setting off higher inflation. An interim 4
percent unemployment target was set as the full employment rate
that would not set off "demand-pull" inflation.
The first major discretionary fiscal move introduced explicitly to
push the economy toward full employment was the Revenue Act of
1964. This act cut marginal tax rates from a high of 91 percent to 70
percent and lowered other rates as well. The act, along with Vietnam
war spending and monetary stimulus, did indeed lower the unemployment rate, which dropped from 5.2 percent in 1964 to 3.5 percent in 1969.
These expansionary policies would have had a larger immediate
effect on inflation had it not been for the fixed exchange-rate system.
The Johnson Administration increased social spending and spending
for the Vietnam war. From the viewpoint of many nations the United
States was financing the Vietnam war with faster money growth.
Under the Bretton Woods system, other countries were buying dollars and increasing their own money supplies to prevent their currencies from rising in value against the dollar. Many nations charged
that the United States was exporting its inflation. (Chapter 3 discusses the breakdown of the Bretton Woods system in more detail.)
The initial effects of stimulative monetary and fiscal actions during
the period were positive; the longer term negative consequences had
yet to materialize. Along with the long expansion and low but rising
inflation came a reduction in the magnitude and frequency of fluctuations, which was a significant spur to entrepreneurial expectations
and investment plans. The threat of deflation appeared to be gone,
replaced by a moderate upward drift in prices.
Buoyant business expectations and high real returns to new investments helped net nonresidential fixed investment to reach a postwar
high in the mid-1960s, before inflation began to accelerate. Investment overseas grew even faster, as countries worked to increase their
capital stock and to take advantage of U.S. technology embodied in
new investments.
SOCIAL PERFORMANCE

Standards of living improved dramatically in the early postwar
period. Between 1948 and 1973 real disposable income per capita
grew at a 2.4 percent annual rate and real median family income
grew at a 3.1 percent annual rate. These gains were evenly distributed, with real family income growing at a 2.9 percent annual rate for




36

families at the lowest fifth of the income distribution and at a 3.1
percent rate for those at the highest fifth (Chart 1-2).
Real Family Income Relative to 1948 Levels
Index, 1948 = 100
300

250
Highest Fifth1

200

150

100

50

i I i i 1 i i I i i I i i I i i I i i I t i I i i I i i I i i I i i I i i i
1948 1951

1954 1957 1960 1963 1966 1969

1972 1975 1978 1981 1984

1987

The highest fifth refers to real family income at the 80th percentile while the lowest fifth refers to real
family income at the 20th percentile.
Note.—Fixed-weighted price index for personal consumption expenditures used as deflator.
Source: Department of Commerce.

Among unrelated individuals, which include the elderly living
alone, the same pattern was repeated, with all groups—with one exception—showing similar gains. The exception was that for unrelated
individuals, the lowest fifth of the income distribution showed larger
gains than other groups. Also, as a group, unrelated individuals did
better than families, with their real median income growing at a 3.5
percent annual rate between 1948 and 1973.
The poverty rate dropped from 30.2 percent in 1950 to 19.5 percent in 1963. Despite this progress, a feeling persisted that more
needed to be done for the disadvantaged. Twenty-five years ago, in
addressing the problem of poverty in America, the Council of Economic Advisers outlined a plan to eliminate poverty. The plan called
for increased social insurance programs to support the elderly, disabled, and unemployed. For others, the plan emphasized the development of skills that would lead to self-sufficiency. Help for the nonaged and nondisabled poor was viewed as an investment in the




37

future, involving improvements in education, health, and community
rehabilitation. The objective was to deal with the long-term causes
rather than short-term symptoms of poverty, in hopes of bringing an
end to the dole. The idea, according to President Kennedy, was "to
give a hand, not a handout/'
The war on poverty began in 1964, but the largest dollar increases
in real public aid expenditures came between 1966 and 1973. Real
expenditures increased from $14.4 billion in 1963 to $22.3 billion in
1967, but rose to $56.3 billion by 1973. Real spending for old-age,
survivors, and disability insurance programs followed a similar pattern. Although the antipoverty programs clearly helped some groups,
especially the elderly, their net effect is difficult to assess because the
programs occurred during a period of low unemployment and relatively good growth in real income. Also, the largest declines in the
poverty rate occurred before the largest increases in transfer expenditures. The poverty rate for persons fell from 30.2 percent in 1950 to
14.2 percent in 1967, but fell only another 3.1 percentage points, to
11.1 percent by 1973, with over half of the decline occurring between
1967 and 1968 (Chart 1-3). While changes in the composition of the
population also affected the poverty rate in the late 1960s, the decline was disappointing in light of the large increase in antipoverty
funding.
Chart 1-3

Poverty Rate, All Persons

Percent of population
32

28
24
20

16,

12

0|
1950

I

1953

1956

1959

I

I I I

1962

!

1965

I

I

I I

1968

Source: Department of Commerce.




38

I

I I I 1 I I

1971

1974

1 I

1977

I I

1980

I

I

I I I I

1983

1986

THE SEVENTIES: INSTABILITY, INFLATION, AND
STAGNATION
After more than 25 years of stability, growth, and low inflation following World War II, the U.S. economy ran into trouble in the late
1960s and 1970s. A series of shocks to the economy combined with
destabilizing monetary and fiscal policies produced a period that has
been characterized as stagflation: high, variable inflation and rising
unemployment. Aggravating these problems were disincentives to
private investment introduced by the tax system, increased regulation, and reductions in government investment.
The 1970s stand in stark contrast to the 1950s and 1960s. Between
1973 and 1981 the rate of inflation was nearly three times as high as
between 1948 and 1973, averaging more than 8 percent and reaching
9.7 percent (four quarter change) at the business cycle peak in 1981.
Until 1981 each successive peak exhibited higher inflation and higher
unemployment. Higher inflation was not buying lower unemployment, and the unemployment rate reached 7.4 percent at the business cycle peak in 1981 (Chart 1-4). Productivity growth plunged to
a scant 0.6 percent per year between 1973 and 1981. Manufacturing's
productivity performance was better than overall productivity, but it,
too, slowed to a 1.3 percent annual rate of increase.
The net result was a stagnation in standards of living. Growth in
real GNP per capita was cut to one-half the 1948-73 rate, to a 1.1
percent annual rate between 1973 and 1981. Real median family
income showed no growth, despite the growth in the proportion of
two-earner families. A real differential began to show up in the
1970s, however, with the lowest groups in the distribution of income
faring the worst. The poverty rate increased from 11.1 in 1973 to
14.0 in 1981,
DESTABILIZING MACROECONOMIC POLICIES

The United States entered the 1970s with rising inflation, a recession, and the collapse of the exchange-rate system. These problems,
inherited from the 1960s, were compounded by two supply-related
changes in the 1970s: sharp increases in energy prices and rapid
labor force growth that injected large numbers of inexperience'1
workers into labor markets.




39

Chart 1-,4

Unemployment Rate and Inflation Rate at
Business Cycle Peaks, and Current Rates

Percent
12
CIVILIAN UNEMPLOYMENT RATE
10f

8,

6.3
6

4.8
3.6

4.
2

o!
12

INFLATION RATE

9.7

10
8.2

8.7

8,
5.5

6
° 4
2,
0,

Fourth Quarter
1969

Fourth Quarter
1973

First Quarter
1980

Third Quarter1
1981

Third Quarter
1988

1

Four-quarter percent change in GNP implicit price deflator.
Note.—Data are seasonally adjusted.
Business cycle peaks as determined by National Bureau of Economic Research.
Sources: Department of Commerce and Department of LaborJ except as noted.

Exacerbating the effects of these exogenous factors were shortterm policy responses. Prominent among these policy responses was
the mismanagement of mounting inflation and the energy shocks. Instead of pursuing the medium-term goal of gradually reducing the
growth rate of the money supply from the rapid pace of the 1960s,
policymakers focused on successive short-term responses to the inflation and unemployment problems.
Price Controls: In 1971 wage and price controls were introduced, beginning with a 90-day freeze on prices and progressing to weaker
controls in later phases of the program. The freeze at first slowed the
measured rate of inflation by suppressing the rise, but in doing so it
may have encouraged a resumption of monetary stimulus. Between
1971 and 1972, M2 increased at an annual rate of 13 percent. The
freeze also distorted relative prices and reduced efficiency.
When the oil "crisis" hit in 1973, the Nixon Administration imposed controls on the price of energy production. The result, howev-




40

er, was distortions in relative prices and gas lines. Perhaps most damaging was policymakers' failure to recognize that the oil price rise
was a one-time increase in the price level, or, depending on monetary policy, a change in relative prices, not a permanent change in
inflation. Consequently, policymakers did not confront the fundamental causes of the underlying increase in inflation—rapid monetary
growth. Although periodic swings in money growth answered swings
in inflation, average money growth remained high.
Discretionary Policies: The attempt to use fiscal and monetary policies
to smooth the economy produced the pattern of successively higher
peaks in inflation at each business cycle peak (Chart 1-4). Higher inflation rates did not produce the reduction in unemployment rates
suggested by the Phillips curve tradeoff. (For a discussion of the Phillips curve tradeoff between inflation and unemployment, see Chapter
2 of the 1988 Economic Report of the President.) The stop-go pattern had
already shown up in the 1960s. In the mid-1960s, there was an acceleration of monetary stimulus, accompanied by fiscal stimulus in the
form of the 1964 tax cut, and Vietnam war and Great Society spending. In the latter part of the 1960s, rising inflation led to the 1968
tax surcharge and to the monetary contraction in 1969 that preceded
the 1969-70 recession. This pattern became more destabilizing and
more volatile in the 1970s, with government responding to shortterm fluctuations, first stepping on the accelerator to stimulate the
economy and reduce unemployment and later stepping on the brakes
to slow inflation.
Information and Lags: Fine-tuning proved to be more harmful than
helpful because of the inherent difficulties in forecasting business
cycle turning points, the long and variable lags in policymaking, the
lag between action and its effect on the economy, and the difficulty
of distinguishing between permanent and transitory changes.
The first problem confronting discretionary policy was, and continues to be, information. Discerning trends in preliminary data is difficult. With hindsight, peaks and trends are easy to spot. Identifying
trends as they occur is more difficult because there are large random
components in the data, many changes in monthly data are not statistically significant, and initial data are often revised substantially.
These difficulties and the time it takes to collect and disseminate the
data make early recognition of trends even more difficult. For example, an analyst using business cycle rules for identifying significant
trends in the leading index of economic indicators would not have
been able to identify in advance either the 1974-75 or the 1981-82
downturns, the two most severe downturns of the postwar period.
These problems, in obtaining reliable information promptly,
present large difficulties when combined with lags in policy. Fiscal




41

policy takes time to enact, and after enactment often requires 3 to 6
months to take effect. Fiscal policies reach their peak effect on average between 9 and 18 months, with wide variation around the average reflecting in part variations in anticipations and information
about the change. Monetary policy has a short administrative lag, but
its effect is usually not felt for between 6 to 9 months, and its peak
effect may occur as many as 36 months later. Further complicating
discretionary policy is the variability of these lags, with the length of
the lag partly depending on anticipations—whether the action will be
taken and the form it will take. Greater certainty about the action
tends to shorten the lag and more uncertainty tends to lengthen it.
Given these lags and the fact that the average postwar contraction
lasts only 11 months, to be effective, discretionary policy requires accurate forecasts of turning points at least four quarters ahead. Unfortunately, the record in the 1970s and 1980s indicates that neither
Federal Government nor private forecasters has been able to forecast
on average whether the economy will be in boom or recession four
quarters ahead. The errors in their forecast tend to be largest at
turning points, and even on average the range of real GNP growth
suggested by the forecasts' standard errors bracket a range from
more than twice the mean rate of real GNP growth to negative real
GNP growth.
Much of the error in these forecasts involves problems in estimating the course of policy. Some estimates indicate that as much as
one-half of the error of forecasts relate to unexpected changes in
monetary policy. Much of the rest of the error results from random
shocks, such as changes in oil prices or in labor force and productivity, and random fluctuations in decisions of governments and private
citizens at home and abroad.
Stop-Go in the 1970s: The record of the 1970s graphically illustrates
the problem with lags and the destabilizing nature of discretionary
policy. Including one-time energy price increases, during 1973 the
measured rate of inflation nearly doubled. To reduce the underlying
rate of inflation in 1973 and 1974, monetary growth had to be reduced, but the sharp spike in prices related to the transitory energyrelated change in relative prices caused the monetary authorities to
overreact. Instead of reducing gradually, they cut the growth in M2
by more than one-half, from 13.3 percent between 1971 and 1972 to
6.2 between 1973 and 1974. While the one-time oil price change had
a role in the severity of the ensuing recession—by reducing real incomes—monetary policy accentuated the effect. The 1974-75 recession was the deepest downturn that had occurred to that point
during the postwar period. Inflation dropped from 8.2 percent at the
pre-recession peak to a low of 5.7 percent following the recession,




42

but unemployment climbed to 9.0 percent. Also, although part of the
reduction was attributable to a fall in the underlying inflation rate,
much of the drop was traceable to the absence of additional oil price
increases.
The 1974-75 recession and higher unemployment prompted a tax
cut in 1975 and accelerated monetary growth. The progress in reducing the underlying inflation rate that had been so expensively gained
was lost. Between 1975 and 1977, M2 growth averaged 12.3 percent.
The Tax Reduction Act of 1975 was a one-time tax cut designed to
stimulate aggregate demand and fight the recession. Unfortunately, it
was passed in March 1975, which was the recession trough, and the
tax cut probably had its initial effect well after the expansion had
begun, and its peak effect at a point well into the expansion, when
inflation pressures were already starting to build. The monetary expansion also began in early 1975, with its initial effect probably occurring even further into the expansion and its peak effect as late as
1978, when inflation was approaching 8 percent.
Later in the 1970s a large increase in oil prices combined with the
inflationary stimulus of past monetary growth to produce rates of
price increases of 7.3 percent in 1978 and 8.9 percent in 1979. The
Federal Reserve again shifted policy. In 1978 it started to tighten
monetary policy and by 1979 was committed to reduce inflation. A
significant slowing in monetary stimulus began.
The periods of rapid monetary growth in the 1970s had a particularly strong effect because of continued increases in velocity (the
ratio of nominal GNP to the money supply). Higher inflation and
higher interest rates during the 1970s kept velocity rising. From 1973
to 1981 the velocity of Ml (a narrower definition of money than M2)
increased from 5.3 to 7.2. The behavior of the velocity of M2 was
influenced by Regulation Q, which fixed interest ceilings on commercial bank deposits, and was more cyclical, tracking changes in shortterm interest rates, the opportunity cost of holding idle money balances. The velocity of M2 also rose, however, increasing from 1.6 in
1973 to a peak of nearly 1.8 in 1981.
THE PRODUCTIVITY SLOWDOWN

Many analyses of the productivity slowdown focus on three exogenous factors that affected the United States in the 1970s: rapid increases in energy prices, rapid labor force growth, and the shift in
demand away from goods and toward services.
The Energy Shock: Because the first oil shock occurred in 1973 and
coincided with the worldwide productivity slowdown and stagflation,
it appeared to explain both phenomena. The increase in oil prices
raised the price level and measured rate of inflation, lowered real




43

output, raised unemployment, and lowered real incomes. The rapid
increase in energy prices also reduced the optimal use of the existing
capital stock, which was designed for low energy prices. Resources
that might otherwise have been devoted to producing and purchasing
new laborsaving capital equipment and structures were diverted to
purchasing new energy-saving equipment and structures.
Some studies in the 1970s attributed a significant share of the decline in productivity to the sharp increase in energy prices; more
recent analysis suggests a smaller effect because energy did not constitute a large enough share of total production costs to cause a prolonged decline in productivity.
Although it does not completely explain continuing stagflation, the
effect of the energy price increase in some energy-intensive sectors,
particularly in manufacturing, may have been significant. Higher
energy prices combined with other pressures to cause an even greater reduction in the optimal use of the capital stock in these sectors.
Some authors have suggested that a gradual change in energy prices
might not have had a significant effect on the productivity of the capital stock because of energy's small relative contribution to total
costs, but that the large sudden increase in energy prices presented
serious adjustment problems.
Higher energy prices may also have had a large indirect effect on
the economy. To the extent that the sudden rise in energy prices
helped to contribute to the stop-go policies of the 1970s, it may also
have contributed significantly to the period's stagflation.
Rapid Labor Force Growth: The growth rate of the civilian labor force
in the United States increased from 1.2 percent between 1948 and
1966, to 2.4 percent between 1966 and 1973, and increased further
to 2.5 percent between 1973 and 1981. These increases resulted
from the maturing baby-boom generation and increasing labor force
participation by women. The acceleration in growth shifted the composition of the work force to younger and less experienced workers,
which tended to slow productivity growth. In 1966, 39 percent of the
labor force were under the age of 35. By 1973 younger workers accounted for 47 percent of employment, and by 1981 they peaked at
51 percent.
This rapid labor force growth also added to the need for an increased rate of capital formation. The increase in labor required an
even larger increase in investment to maintain the existing ratio of
capital to labor and output per unit of labor. Unfortunately, coinciding with the rise in labor force participation was a slowing of the rate
of capital formation.
The increase in labor force growth may have begun to assert its
effect in the mid-1960s, when productivity growth dropped from a




44

rate of 3.3 percent between 1948 and 1966 to 2.1 percent between
1966 and 1973. Between 1973 and 1981, however, productivity
growth dropped sharply to a rate of 0.6 percent, even though labor
force growth was not much faster during this period than between
1966 and 1973. A more important factor was probably the slowdown
in capital accumulation, which contributed to the slowdown in the
growth rate of the net capital stock per worker. The productivity literature also suggests a relatively small effect on productivity from
rapid growth in the number of young workers between 1973 and
1981.
Shifts in the Composition of Demand: Throughout U.S. history shifts in
the composition of demand have affected productivity and economic
growth. Flexibility in labor markets allows resources to move into expanding sectors. In the past, increases in agricultural productivity
freed resources from farming to be used in the expanding nonfarm
sectors. The shift raised average productivity as resources left agriculture—a sector with a relatively low level of output per man-hour—
to other sectors with higher output per man-hour.
During the 1970s manufacturing productivity increased, although
at a slower rate than in the 1950s and 1960s, which allowed manufacturing's share of GNP to remain roughly constant despite an increase
in the share of the labor force employed in the expanding servicesproducing sector. This shift facilitated the employment and training
of a large number of young, inexperienced workers.
In contrast to the net boost that the shift out of agriculture gave to
average productivity, the shift to service industries lowered measured
productivity growth because the faster growing components of the
service sector had lower measured levels of productivity. Estimates of
the effect of the shift in the composition of output vary widely, but it
may have reduced overall measured productivity growth by as much
as one-fourth. It is difficult to assess the true effect because part of
the difference in productivity across sectors may be the product of
problems in measuring output and productivity in the service industries.
In addition to these three exogenous factors, two other factors affected the productivity slowdown that were subject to Federal Government control: inflation and regulation.
Inflation: One of the most important changes in the U.S. econoniy
that accompanied the U.S. productivity slowdown was rising inflation.
Although analysts have carried out a large number of studies on the
productivity slowdown, they seldom discuss or measure the direct effects of inflation—particularly variable inflation—on productivity. Yet
the rise and variability of inflation after 1973 clearly paralleled the
productivity slowdown. The potential impact of inflation is especially




45

important because, as the past 8 years have demonstrated once again,
inflation is clearly subject to Federal Government control through
monetary policy. In contrast, rapid labor force growth and the energy
crisis are largely beyond the reach of government policies.
The effect of inflation in the United States in the 1970s and early
1980s, however, was not just to redistribute income. Inflation was
high and variable, rising from 4.4 percent during 1972 to 10.1 percent during 1974, dropping to 5.7 percent in 1976, and rising again
to 8.9 percent by 1979. Within a structure of unindexed taxes and
contracts, high and variable inflation had real effects and pulled
down measured productivity in a number of ways.
Noise and Relative Prices: During the 1970s high and variable
changes in the rate of inflation were accompanied by a significant increase in the variability of relative input prices, as measured by the
producer price index for intermediate goods. Not only did relative
prices change more frequently, but also relative price changes did
not appear to be lasting. For many goods, adjusting prices costs
something, and sellers adjust prices infrequently. The result may be
that during a period of high and variable inflation, relative prices
may for a time be more a function of the pattern of past changes
than a reflection of current or future resource cost.
Relative price volatility was important because many price contracts
were not indexed for inflation and because changes in resources used
in production processes can be costly. When decisions are based on
relative price changes that reflect statistical noise and random adjustments rather than on changes in real costs, these rigidities can cause
significant inefficiencies in resource allocation and reduce measured
output per unit of input.
Even without rigidities, volatility in relative prices imposes two
other types of costs. The first is the cost to sellers of adjusting prices,
while the second is the cost to buyers and managers of having to
learn new information and integrate it into decisionmaking.
Managerial Efficiency: In addition to its effect on resource allocation
in the choice of input combinations, inflation had another significant
effect on managerial efficiency in the 1970s. Operating decisions
about productivity had a smaller impact than inflation on reported
profits and rates of return; and managers had an incentive to allocate
more time to the latter and less to the former. With input prices and
wages rising at 10 percent or more, managers could save more by
buying early or trying to win a wage concession than by trying to improve productivity by a percentage point or two.
These labor and material pressures were reflected in the behavior
of inventories. Expectations of rising prices and low real interest
rates gave managers an incentive to carry more inventories, raising




46

the inventory input for a given level of output and raising inventory
profits. In contrast to today's just-in-time inventory systems, in the
1970s inventory-to-sales ratios reached their highest postwar levels.
The relationship of inflation to incentives is graphically illustrated
by its distorting effect on reported profits. Inventory profits came to
account for a rising share of reported profits. Inflation also understated the replacement cost of capital assets, which further increased
book profits. Reinforcing these effects on profits, inflation caused the
value of a firm's capital assets to be understated. The result of all
these effects was to cause accounting—or historical cost—rates of
return reported to stockholders and upper management to diverge
sharply from real rates of return, with nominal rates of return trending upward slightly while real rates trended down (Chart 1-5).
Chart 1-5
Alternative Rates of Return on Capital Investment
Percent
2)5

Historical Cost

20'

15

10

X

/•»•

/-•\

-

Current Cost

\ x'~\ \ /
'"'
\N \/

_

'v

X

X

A~

Current Cost After Interest and Taxes

*v*

^X^v/

_L i i i 1 i i i i i i i i i I i i i i I i i i i I i i i i I i i i i I i i i i
1948

1953

1958

1963

1968

1973

1978

1983

1987

Source: Unpublished data from Department of Commerce.

In the 1960s real operating profits from production accounted for
up to 82 percent of accounting rates of return for U.S. nonfmancial
corporations; inventory profits and the understatement of capital
costs and assets resulting from the effects of inflation-induced profits
accounted for the other 18 percent. Rising inflation in the 1970s increased the importance of inflation, and by the early 1980s, inflation
accounted for as much as 54 percent of accounting rates of return




47

and real operating profits from production accounted for only 46
percent. The effect of inflation on returns after taxes and interest
payments was even more dramatic. By the early 1980s, inflation's
share reached 72 percent of accounting rates of return after taxes
and interest payments and real operating profits 28 percent.
In addition to the incentive and time problems related to inflation,
managers had the added burden of burgeoning government regulations and of trying to forecast the effect of the stop-go economic
policies. Under these uncertain conditions, at the margin, managers
were likely to spend more of their time on purchasing and planning
decisions—as well as on complying with new regulations—than on
basic operating decisions. Training personnel, attending to plant
maintenance, or working on improvements in work processes may
have received less attention as a result of the increased demands resulting from inflation and regulation and the lower relative returns to
time devoted to these activities.
Investment Incentives and Investment Trends: In addition to the distorting effect on accounting profits and rates of return, inflation raised
effective tax rates on capital investment. Real after-tax rates of return
fell, lowering investment incentives. Inflation eroded effective corporate profits by reducing the value of depreciation allowances and
measured materials costs, thereby raising effective tax rates on capital
that were based on nominal profits. Partly offsetting these effects was
the deductibility of nominal interest payments. On average, however,
the net effect was an increase in effective tax rates that accompanied
the decline in real operating rates of return.
While uncertainty continues among economists as to how much the
interaction of inflation and taxes increased effective tax rates and reduced real returns, and how much the rise in effective tax rates reduced the rate of capital formation, it is likely that higher effective
tax rates had a significant role in reducing the rate of capital formation. One frequently cited estimate suggests that the interaction of
inflation and taxes reduced net investment by as much as one-third.
The effect of inflation and taxes had another distorting effect on
nonresidential investment. During the 1970s and early 1980s, inflation and the Tax Code gave large incentives to investment in residential housing while it lowered the net returns to investments in financial markets. Taxation of capital gains that reflect inflation rather
than real increases in value also reduce incentives to save and invest.
Partly as a result, housing values soared and stock values stagnated
while the replacement cost of plant and equipment rose. As might be
expected, lowering the stock market value of firms relative to the cost
of new plant and equipment raised the firms' cost of capital and lowered the incentive to invest in new capital.




48

Slower capital formation lowered U.S. productivity in three ways:
by failing to keep up with rapid labor force growth during this
period, the growth rate of capital per worker slowed dramatically; by
slowing down the rate of adoption of new technologies embodied in
new plant and equipment, the growth rate of capital productivity was
reduced; and the slowing of the rate of adoption of new technologies
may have reduced the learning by doing that accompanies new investments and feeds back into the rate of technological change. (Science and technology are discussed in Chapter 6.)
Although considerable controversy surrounds the relative importance of the slowdown in capital formation, most studies have found
that slower capital formation had a significant and substantial influence. The range of estimates is wide, with most of the estimates of
slower capital formation ranging between 20 and 50 percent of the
slowdown. And perhaps most important, in contrast to the rapid
growth in labor force or the energy crises, government policies—
either through their effect on taxes or inflation—have an important
effect on incentives that influence the rate of capital formation.
Although some slowing of the rate of capital formation occurred
after 1966, the drop in the 1970s was dramatic. The rate of growth
in the private real net nonresidential capital stock per worker
dropped from 2.2 percent between 1966 and 1973 to 1.4 percent between 1973 and 1981. The trend across industries was not even.
Capital formation in manufacturing showed significant growth in the
1970s. Net capital stock per hour worked rose at a 3.4 percent annual
rate between 1973 and 1981, while growth in capital per worker in
nonmanufacturing slowed between 1973 and 1981, to a 0.7 percent
annual rate (Chart 1-6). Partly as a result of the continued growth in
capital formation, manufacturing productivity growth did not suffer
as much of a slowdown as did productivity in other sectors.
All these factors notwithstanding, one of the most important effects of inflation on private investment incentives was the result of
stop-go policies that produced higher inflation and unemployment.
Instability reduced incentives to investment, making entrepreneurs
more cautious, more concerned about downside risks, and less willing to undertake new investments and projects.
Paralleling the decline in private capital formation was a continued
decline in government capital formation as government direct transfers and insurance programs rose. After peaking at 4.1 percent of
GNP in the mid-1960s, the ratio of government nonmilitary investment to GNP declined throughout the 1970s, falling to 2.1 percent
by 1981. This decline in nonmilitary investment paralleled a decline
in military investment, which allowed U.S. defense capability to run
down.




49

Chart 1-6
Output per Hour and Capital Stock per Worker,
Manufacturing and Nonmanufacturing
Index, 1948=100

3001
OUTPUT PER HOUR

280!
260!
2401
2201
200
Manufacturing

180
160
140
120
100

Index, 1948=100

300
NETNONRESIDENTIAL CAPITAL STOCK PER WORKER

280
260
240
220
200
180
160
140
120
100

1948 1951 1954' 1957 ' 1960 1963 1966 1969 1972 i 1975 1978 1981 1984 1987
Sources: Output per hour, unpublished data from Department of Labor; capital stock per worker,
Council of Economic Advisers, biased on data from Department of Commerce.




50

Incentives to Entrepreneurial and Other Labor Effort: Just as businesses
and investors experienced inflation-induced bracket creep, entrepreneurs and workers also saw bracket creep reduce their returns to
extra effort. One-earner families of four with twice the median
income—who were more likely to be entrepreneurs and professionals—saw their marginal tax rates increase from 28 to 43 percent,
while their real income stagnated. Proprietors' income declined from
10.6 percent of personal income in 1973 to 7.6 percent in 1981.
Wage and salary workers also saw their marginal tax rates rise as
their real incomes stagnated. Between 1973 and 1981 nominal
median family income for a one-earner family of four increased 92
percent, while the family's real income was little changed and its marginal Federal income tax rates rose from 19 to 24 percent. The
impact on married women and other secondary workers was particularly severe, as they faced declining real wages and high marginal tax
rates on their labor effort.
Measurement Problems: One of the most difficult problems in measuring productivity is separating pure price changes from changes in
product price that reflect changes in the characteristics or quality of a
product. The difficulty of making this separation is increased when
either prices change rapidly or technology changes rapidly. During
the 1970s rapid increases in prices increased the complexity of measuring relative versus pure price changes. There was also the added
difficulty of distinguishing permanent versus temporary price
changes.
In constructing price indexes, producers are asked to estimate the
cost of product improvements, and these costs are used to adjust the
product's price index so as not to overstate pure price change. If the
quality change is costless or the cost is difficult to identify, however,
the price index will not capture the improvement and any price increase will be shown as a pure price increase rather than as an increase in output. This problem is especially acute in industries where
there is no physical output and where changes in quality are hard to
measure or even observe. Interestingly, the decline in productivity
growth in nongoods-producing sectors, such as finance, insurance,
and real estate, transportation services, and other services, was much
more pronounced than in manufacturing.
Rapid and variable increases in input prices during the 1970s probably made the estimation of the cost of improvements more difficult
than during the 1960s. As a result, some overestimation of inflation,
which resulted in an underestimate of real output growth may have
occurred during this period.
Added to the problem of separating relative from pure price
changes was the expanding underground economy. Increasing tax-




51

ation of inflation gains through bracket creep gave extra stimulus to
the underground economy. Higher effective tax rates may help to explain the productivity declines in construction and services where
there are significant numbers of sole proprietorships and underreporting of receipts is most likely.
Understatement attributable to the underground economy is more
likely to show up as an understatement of receipts and income data
than as an understatement of employment. As a result, if the statistical agencies did not adequately adjust for increases in the understatement of noncorporate income during the 1970s, they may have permitted a downward bias to enter the productivity estimates.
Regulation and the Productivity Slowdown: In addition to its impact on
management efficiency, regulation reduces productivity by increasing
capital and labor inputs without an increase in measured output. For
example, environmental health and safety regulations in certain industries required new capital equipment designed to reduce pollution
and produce environmental and health benefits but not measured
output. Studies of these added capital and labor costs to industry estimate that, although government regulations improved the environment, they reduced measured productivity by about 15 percent between 1973 and 1981.
As the costs of these regulations became evident, policymakers
began to reconsider the costs and benefits of environmental, safety,
and other regulations. Questions were raised about the impact of
regulations on costs and productivity of even the oldest of regulated
industries. Entry and pricing restrictions in these areas resulted in inefficiencies that raised prices and reduced the quality of services. In
recognition of these costs beginning in the 1970s, deregulation
began in air transportation, trucking, and railroads as well as in other
areas. (Regulation is discussed in Chapter 5.)
SOCIAL PERFORMANCE

The failure to reduce poverty in the 1970s was a source of social
frustration. Part of the poverty problem appeared to be related to the
stop-go policies that affected all families. The poverty rate had
reached an all-time low of 11.1 percent in 1973, but the 1974-75 recession raised the rate to 12.3 percent. Economic expansion and a
reduction in inflation seemed to improve the poverty rate, but shortly
thereafter inflation began to rise and the economy moved in 1980
into a mini-recession. The poverty rate rose from 11.4 percent in
1978 to 14.0 percent in 1981 (Chart 1-3).
Part of the poverty problem was probably related to measurement
issues because the official poverty statistics are based on the consumer price index, which in the 1970s and early 1980s overstated




52

housing costs and inflation. The poverty statistics also exclude noncash income, a growing component of means-tested benefits. The net
effect of these factors was probably to overstate the rise in poverty
that occurred between 1973 and 1981.
Another part of the poverty problem appears to have been related
to diminishing returns to economic growth. During the 1950s and
1960s increases in median income were accompanied by large reductions in poverty. When median income was lower, a significant proportion of the population was near the poverty income level. As
median income rose, a large number of persons were lifted from poverty. By the 1970s, however, the poverty threshold was located in the
long flat tail of the lower end of the income distribution, and further
shifts in the location of the distribution lifted fewer people from poverty.
Interestingly, if a fixed distribution of income, such as the 1948
distribution, is used with growth in median income to "predict" the
percentage of the population that would have been at low-income
levels, it produces a "predicted path" that tracks the actual path
quite well (Chart 1-7). Thus, despite the fact that large sums were
being redistributed to reduce poverty, the distribution of income was
little changed, and the low-income population appears to have been
moving along a path that would have been predicted by economic
conditions alone. The persistence of large numbers of low-income
families and the rise in poverty rates may help to explain why at the
time there was a nagging feeling that the effort to invest in people
and "to give a hand, not a handout," was failing.
Real spending on public aid increased from $56.3 billion, measured in 1982 dollars, in 1973 to more than $87.1 billion in 1981.
The programs did benefit some groups. Unrelated individuals and
the elderly showed improvement and, despite the poor economic
performance over this period, the poverty rate for unrelated individuals fell from 25.6 percent in 1973 to 23.4 percent in 1981 and for
those over 65 from 16.3 percent to 15.3 percent.
For other groups a disturbing trend suggested that increased transfers were influencing behavior and fostering dependency. The proportion of births to unmarried women was rising and showed an
alarming increase among the most disadvantaged groups. By 1981
more than one-half of all black births were to unmarried women, and
for those aged 15 to 24 nearly 70 percent were to unmarried mothers. This development was particularly disturbing because families
with the poorest economic outlook were increasing, suggesting that
poverty was increasingly becoming a long-run condition for these
families. The proportion of the poverty population accounted for by
female-headed families grew dramatically, while those headed by a




53

Chartl-7

Actual and "Predicted" Proportion of Families
With Income Below $10,000 in 1987 Dollars

Percent of families

50'

40

30

20

"Predicted"
10

Actual
Oi
1948

I
1951 1954 1957 1960 1963

I

I

I
1966 1969

1972 1975

1978

1981 1984

1987

Note.—Consumer price index for urban consumers used as deflator.
Sources: Department of Commerce and Council of Economic Advisers.

full-time worker declined. The proportion of families in poverty
headed by women rose from 23 percent in 1959 to 35 percent in
1968, and rose further to 48 percent by 1981, while those with a fulltime, full-year worker as head of the household fell from 31 percent
to 27 percent between 1959 and 1968 and to 18 percent by 1981
(Chart 1-8).
An increasing proportion of these families also was headed by
women with little or no work experience. With child care responsibilities and expenses and no work experience, job prospects were poor
for these women and labor force participation correspondingly low.
In 1981 more than 50 percent of black and Hispanic female-headed
households were in poverty. Among these poor households only 34
percent of the women worked and only 7 percent worked a full-time,
year-round job.




54

Chart 1-8

Composition of Families in Poverty

As a percentage of all families in poverty
60

50

Female-Headed
40

30

20

Head—Full-Time, Full-Year Worker

10

I

I
1959

1963

1967

1975

1971

1979

i

1983

1987

Source: Department of Commerce.

THE EIGHTIES: LOWER INFLATION, IMPROVED INCENTIVES,
AND IMPROVED PERFORMANCE
This Administration replaced the stop-go interventionist policies of
the 1970s with a different view of the role of the Federal Government and of incentives. This view was based on lessons from U.S.
economic history: the best performances have been recorded when
government has provided stability and relied on the dynamism of the
private sector.
The Administration emphasized that government often does best
when it improves incentives and encourages private market solutions.
The Administration sought to take government back to the basics,
delivering the essential services and ensuring the stability that the
private sector requires and allowing markets to work, often by providing a framework that gives incentives to private individuals to seek
solutions. Desiring not to repeat the failures of short-term discretionary policy in the 1970s, the Administration abandoned discretionary
fiscal policy. In its place the Administration has used fiscal policy as a
tool for restoring incentives and efficiency, both in the private sector




55

and in the government and giving incentives for the private sector to
plan for the future. The Administration has continued the drive for
deregulation and has put forward new proposals to reduce rigidity. It
has encouraged the monetary authorities to pursue the goal of noninflationary growth. Finally, the Administration has continued work
on lowering barriers to trade, trying to avoid protectionism and encouraging trade. The private markets have responded well to these
improved incentives, and the flexibility of U.S. markets has allowed
the United States—in contrast with the nations of Europe—to enjoy
lower inflation and lower unemployment.
Like the 1970s the 1980s were a difficult period for the economies
of the world. The move to slower monetary growth reduced inflation
rates in the major industrialized nations, but it caused one of the
most severe downturns of the postwar period. Partly as a result of
inflexibility in their labor markets, many countries have not yet fully
recovered from the downturn. Unemployment has remained high.
Less developed countries have been plagued by the "debt crisis/*
slow growth, and the need to earn foreign currency. In many nations,
including the United States, the sharp drop in oil prices beginning in
1985 hit sectors of their economy hard. Low aggregate demand in
Europe and in the less developed countries and rapid export-led
growth in the Pacific rim resulted in increased competition in import
and export markets.
Despite these difficulties the U.S. economy recorded a dramatic reversal from the record of the 1970s. The 1981-82 recession, which
was one of the most severe downturns of the U.S. postwar period,
slowed growth in the early 1980s, but a vigorous recovery resulted in
strong U.S. economic growth in the 1980s.
Since 1981 real GNP has risen at a 3.0 percent annual rate, a sig+
nificant improvement over the 2.1 percent annual rate between 1973
and 1981. Real GNP per capita has risen at a 2.0 percent annual rate,
compared with a 1.1 percent annual rate between 1973 and 1981,
and is slightly above the 1.7 percent growth trend for the 1900s. This
record compares favorably with the record for the other major indus*
trialized nations during the 1980s.
Perhaps the most important characteristic of the 1980s is that
during the past 8 years the cyclical pattern of higher inflation and interest rates has been broken. Inflation has been cut to nearly onethird of its 1980 rate, short-term interest rates are about one-half
their peak 1981 levels, and long-term interest rates have declined
substantially.
Largely because of labor market flexibility and improved incentives, lower inflation in the United States did not result in higher unemployment, and strong gains in employment and reductions in un-




56

employment followed the 1981-82 recession. Nonfarm jobs have increased by nearly 19 million since the recession trough of November
1982, for a net total of 16 million jobs since July 1981. Civilian un£mployment has been cut by one-half, from 10.8 to 5.4 percent, with
gains for all major demographic groups. This employment record is
in sharp contrast to that in Western Europe where unemployment in
1987 was 10.7 percent, just below the postwar record high.
Although overall productivity growth has not achieved the growth
seen between 1948 and 1973, improvement has been significant.
Since 1981 private business sector productivity has grown at a 1.7
percent annual rate, more than double the 1973-81 rate. Manufacturing productivity has grown at a 4.1 percent rate since 1981, roughly
one and one-half times the postwar average and more than three
times the rate of 1973-81. Manufacturing remains strong; the United
States is not deindustrializing. Manufacturing production is up 43
percent during this expansion, and 29 percent since the mid'1981
peak. Manufacturing's share of total output, around 22 percent, is essentially the same as its peak levels during the past 25 years. Strong
productivity growth has allowed manufacturing to maintain its share
of total output despite a declining employment share.
The two nagging problems for the U.S. economy in the 1980s were
the budget and trade deficits. The growth in the trade deficit in the
1980s reflected several interrelated developments, including the
strength of the U.S. economy and U.S. domestic demand relative to
other countries, the debt crisis in less developed countries, the attractiveness of investment in the United States, and the high value of
the dollar. Since 1985 the dollar has come down in value and U.S.
domestic demand growth has slowed while other countries' domestic
demand has accelerated. The improvement in the trade balance has
been substantial as both the real and nominal trade deficit have
fallen sharply from their peaks in 1986 and 1987, respectively. (The
trade deficit and other trade issues are discussed in Chapters 3 and
4.)
The Federal budget deficit is a more serious problem and, although the current U.S. debt burden relative to GNP is comparable
with the burden in the 1950s and early 1960s and to that of many of
the other G-7 summit nations, it is still large. The increase in the deficit in the 1980s was largely the result of spending increases rather
than tax cuts. Tax changes in the 1980s brought Federal taxes as a
share of GNP close to its historical average, while spending continued its upward trend. Real progress has been made in reducing
spending and the deficit since fiscal 1985, and the deficit as a share
of GNP has declined from 5.3 to 3.2 percent of GNP; however, Federal dissaving continues to exacerbate the U.S. savings investment




57

imbalance and continued progress on reducing the deficit is important. (The budget deficit is discussed in Chapter 2.)
SOURCES OF THE IMPROVEMENT IN OUTPUT, INFLATION, AND
PRODUCTIVITY PERFORMANCE

Increased Stability in Macroeconomic Policy: In contrast with the use of
spending and taxes in attempts to control aggregate demand in the
1970s, in the 1980s the focus has been on longer term issues concerning the appropriate sphere of government action. Examples of
issues that were addressed on the spending side were the mix of government spending between Federal, State, and local levels and the
appropriate role of transfer programs. On the tax side, the issues
concerned the effects of bracket creep and the effect of taxes on incentives.
Beginning in 1979 the Federal Reserve undertook to control one
measure of the quantity of reserves rather than a short-term interest
rate. This task was not easy, however, in part due to disinflation and
changes in financial markets and in part due to the Federal Reserve's
control procedures, particularly the use of lagged reserve accounting
that has since been modified and depository institution borrowing
from the Federal Reserve discount window.
Deregulation, the creation of new deposit instruments, and the
general increase in the pace of financial innovation caused many
changes in financial markets. Significant shifts occurred across different deposit instruments, and the management of monetary policy
became more difficult.
Despite these problems, between the late 1970s and 1980, M2
growth fell from a high of 13.7 to around 8.0 percent, with an average growth of 8.5 percent since 1978. This decline in monetary
growth was reinforced by a decline in velocity. After peaking at 1.7 in
1981, M2 velocity fell at an average of 1.4 percent a year between
1981 and 1987.
The shift to slower money growth was not painless and the 198182 recession was the second most severe recession of the postwar
period, perhaps partly because the Federal Reserve's past behavior
encouraged the expectation that monetary ease and higher inflation
would follow soon after monetary restriction. Despite the difficulties,
slower monetary growth and less volatility paid large rewards. The
rate of inflation fell from 9.7 percent in 1981 to the 3.5 percent
range, and unlike periods in the past, it has stayed in that range.
Contrary to the fears of many, it will stay in that range and gradually
drift down if the monetary authorities remain committed to reducing
the rate of inflation to achieve price stability. Monetary policy will
contribute to stable growth if the monetary authorities focus on the




58

medium-term prospects, moving toward the goal of noninflationary
growth and avoiding the past errors of overreacting to short-term
shocks to the economy.
Investment Incentives: Three major factors have operated on investment incentives since 1981: tax reform, lower inflation, and increased
stability in the macroeconomic outlook.
Tax Policy: The Economic Recovery Tax Act of 1981 (ERTA) arose
out of concern for the effect of inflation on incentives. It was designed to address the eroding effect of bracket creep on incentives to
produce, save, and invest. On the personal tax side, lower marginal
tax rates, lower capital gains tax rates, and indexation removed many
of the effects of bracket creep and inflation on incentives to save and
invest. As it turned out, the effect on aggregate saving was more than
offset by a 26 percent increase in household net worth between 1981
and 1988 and high consumption expenditures by baby-boomers who
were at the peak of their spending for consumer durables, child care,
and education. Although these are investment expenditures that yield
returns in later years, they are the types of saving and investment
that are excluded from the definitions used by national income accountants, and therefore reduce recorded saving and investment.
On the business tax side, ERTA accelerated depreciation allowances, increased the investment tax credit for certain assets, and improved other business tax incentives. Changes in the tax law and
lower inflation resulted in effective tax rates for some assets that
were low and for some types of equipment were negative. Some investment incentives were reduced under the Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA), but the net effect was that effective tax rates were significantly reduced by ERTA, even after adjustments by TEFRA. The net result was to increase investment relative
to GNP. By lowering marginal personal tax rates and capital gains
rates, ERTA and TEFRA also improved the investment returns for
entrepreneurs. One estimate suggests that ERTA and TEFRA raised
investment by at least 20 percent between 1982 and 1984, with a
smaller net effect between 1985 and 1987. The two acts also reduced
the differences in effective tax rates across assets ^and industries.
Most estimates indicate that ERTA and TEFRA improved resource
allocation and the efficiency of the capital stock.
The Tax Reform Act of 1986 (TRA) was a comprehensive reform
directed toward further reductions in marginal tax rates, reducing
distortions, and broadening the tax base. The act substantially evens
the cost of capital across assets. Overall the reduction in marginal tax
rates and removal of many tax preferences will help to ensure that
investment and financial decisions are based on economic rather than
tax-motivated grounds.




59

The long-term effect of the TRA on capital efficiency is expected
to be significant. The act did increase the effective tax rate on capital
at a given inflation rate, but, relative to the early 1980s, this effect
was more than offset by lower inflation.
Lower Inflation: Lower inflation had several effects on investment incentives. It reduced the variability of relative prices, allowing decisionmakers to more accurately anticipate future relative prices, thereby allowing them to allocate resources more efficiently, especially
those involving fixed dollar commitments for the future. The variance in relative prices for non-energy goods, as measured by the producer price index, dropped 39 percent between 1973-81 and 198187.
With relative prices more accurately reflecting future resource
costs, investment decisionmaking was improved. Costly investments
in machinery and equipment that in the 1970s were made inefficient
by subsequent and unexpected changes in relative prices were avoided. The reduction in volatility lengthened the expected useful lives of
assets and enhanced decisionmakers' incentives to concentrate on
long-run investment planning rather than short-run strategies.
Lower inflation in conjunction with reduced regulation also gave
managers the incentive to concentrate on basic management decisions rather than on purchasing and paperwork responsibilities. The
reduction in inflation sharply reduced inventory profits and brought
book value depreciation closer to real replacement cost depreciation.
Lower inflation brought asset values and depreciation in line with replacement cost slowly, through new investments and through the depreciation and scrapping of the old capital stock. Nonetheless, by
1987 real operating profits accounted for 64 percent of accounting
rates of return and the inflation share fell to 36 percent, versus 46
and 54 percent, respectively, in the early 1980s.
Similarly, lower inflation significantly reduced effective tax rates on
capital investment. For new investments, low expected inflation
caused book value depreciation to be closer to replacement cost depreciation, and inventory costs to be closer to replacement cost. As a
result, the inflation tax on new investments was significantly reduced.
Although there is considerable controversy regarding the effect of inflation on effective tax rates, according to one model, the reduction
of inflation from 13.5 to 4.0 percent would have reduced the effective tax on new capital investments by one-third, even without any
change in tax laws. Also with inflation in the 4 percent range, despite
increases in effective tax rates as a result of TRA, the effective tax
rate on new plant and equipment investments in 1988, at 41 percent,
is still 10 percentage points lower than in 1980. Reducing inflation




60

and achieving price stability, therefore, are as important as tax laws
in keeping effective tax rates from rising.
Business Confidence: One of the more important factors explaining
the improvement in U.S. growth and productivity may be the increase in stability that occurred during this expansion. Reduced volatility of inflation and interest rates since the early 1980s and the absence of a contraction for 6 years has significantly improved business
confidence, raising investment.
These improvements in stability and business confidence are important because most studies of the determinants of investment have
found sales expectations to be more important than tax or relative
price effects in determining investment spending.
Trends in Investment: In response to the improved outlook and
heightened investment incentives, real nonresidential investment
spending has done well in the 1980s. Investment dropped during the
1981-82 recession, but between 1981 and 1987 it averaged 11.8 percent of GNP, which is 1 percentage point above the postwar average.
Despite this increase in gross investment, the net real capital stock
per worker grew at only a 0.5 percent annual rate between 1981 and
1987. This difference in rates of capital accumulation reflects the fact
that, while the gross investment share of GNP has been increasing,
measures of net investment—gross investment less estimated depreciation—have been falling (Chart 1-9),
In terms of its effect on productivity, this trend in net investment
and capital per worker has been offset by increases in the efficiency
of capital, particularly in manufacturing. Since 1981 real output per
unit of capital has risen 15 percent, or 2.3 percent a year.
Despite the improvement in capital productivity, some observers
consider this trend in net investment particularly disturbing because
standard national accounting measures indicate that U.S. investment
as a share of GNP is smaller than that of other nations. Also, the
United States spends a bigger share of investment on consumer durables and housing than many other nations. However, properly
measured aggregate U.S. investment is comparable with that of most
other industrialized nations of the world. Concerns about the low
rate of aggregate saving and investment in the United States are exaggerated by national income and product accounts accounting conventions. If all expenditures that yield future income or services are
counted as investment-—including consumer durables, education, research and development, and military capital—then U.S. investment
and saving as a share of GNP roughly equal those of most major industrialized nations of the world. The U.S. saving and investment
shares on this basis are still significantly lower than Japan's, but because per capita income is higher than in Japan, investment per




61

Gross and Net Investment Shares of GNP
Percent of real GNP
14
REAL NONRESIDENTIAL FIXED INVESTMENT

12

10

Net
\

/
/

XN

—•-%

/%

I
1947

1951

1955

1959

1963

1967

1971

1975

1979

1983

1987

Source: Department of Commerce.

capita in the United States is not significantly lower than Japan's
when investment is measured more comprehensively than in the national income and product accounts.
The composition of U.S. investment and the slower U.S. rates of
investment in plant and equipment relative to other countries result
partly from the high levels of U.S. nonresidential private capital relative to other nations in the postwar era. The United States could
afford to invest more in consumer durables because of its high ratios
of capital to labor and associated high levels of GNP per capita.
Japan and the other industrialized nations, on the other hand, had
powerful incentives to invest and rebuild their capital stocks. As they
approach U.S. levels, however, their investment paths may more
closely resemble the U.S. path. In the pre-war era the United States
had high investment rates relative to the rest of the world.
The U.S. investment pattern, however, may also stem from the bias
in the Tax Code toward investments in housing and consumer durables. Also, higher levels of government infrastructure in the United
States than in other countries allowed government investment to slip
in the 1970s and 1980s. Now that other countries have closed most




62

of the gap and the United States is running a persistent trade and
saving-investment deficit, it may be time to take steps to reallocate
the investment mix and raise the level of U.S. nonresidential business
investment or accept a lower rate of growth in the standard of living
than in competing countries.
Accompanying the high levels of investment in residential structures and consumer durables is the declining trend in net nonresidential fixed investment (Chart 1-9). While gross nonresidential investment as a share of GNP has risen in the 1980s relative to the
1970s, net nonresidential fixed investment has declined as a share of
GNP. These divergent trends result partly from tax incentives and
may also be examples of problems in measuring depreciation.
The reason for the divergence between the trends in gross and net
investment as a share of GNP is a shift in the mix of assets. Investment has shifted toward shorter lived assets, and the measured rate
of depreciation on the capital stock has increased. The implication is
that either the mix of investment must change or gross investment
must increase even faster if the growth rate of net investment is to
rise.
Technological change and a Tax Code that favored investment in
equipment over structures has caused private nonresidential investment to shift away from long-lived structures toward shorter lived
equipment. In 1960, 48 percent of investment was in structures and
52 percent in equipment; by 1987 these proportions were 28 and 72
percent, respectively. The shift to equipment was amplified by a shift
within equipment toward shorter lived computers and transportation
equipment.
The Tax Reform Act of 1986 did much to even effective tax rates
between equipment and structures. However, tax reform raised effective corporate tax rates on business investment and removed the
preferential treatment of business capital gains while retaining much
of the advantage of investment in housing and consumer durables.
Residential housing receives preferential treatment, because imputed
returns are not taxed, interest and property tax payments are generally tax deductible, capital gains can be rolled over into a residence
of equal or greater value, and, with the one-time exclusion of
$125,000 in capital gains from the sale of a principal residence for
those over age 55, the bulk of capital gains on residential housing is
never taxed. The Tax Reform Act of 1986 phased out the deductibility of interest payments on consumer durables, but a revision on the
use of home-equity loans in 1987 opened the possibility for homeowners to use deductible home-equity loans to finance consumer durables. Under current law, deducibility is no longer limited to home
improvements or educational and medical expenses.




63

Although a clear shift has appeared in the mix of capital and some
of the bias toward short-lived investment has been reduced, at least
part of the trend in net investment may be related to problems in
measuring depreciation. The problems are so severe that many researchers use averages of net and gross investment to approximate
the productive potential of capital stocks. Gross investment may be
more relevant than net investment in analyzing productivity because
replacement investment embodies the latest technologies. If an average of the two measures were used to measure investment share, no
clear trend would be visible in its share during the 1980s.
Unfortunately, not much solid information is available on service
lives for different types of capital assets, and much of the data available from the Department of the Treasury seems to embody a bias
toward shorter service lives during the postwar period that does not
appear to be related to technological change.
Equally important to the size of the net capital stock and net investment are depreciation and retirement patterns. Once again solid
empirical data on this dimension of capital are lacking. The official
Department of Commerce capital stock estimates are based on
straight-line depreciation and a pattern of discards that is similar to a
normal distribution. Straight-line depreciation is generally not consistent with most independent estimates of economic depreciation,
however, and little empirical information is available on the distribution of discards around the estimates of average service life. As a
result, the Department of Commerce produces an alternative capital
stock series that uses a different decay function, with slower depreciation in the early years and faster depreciation in the later years of an
asset's service life. This alternative method raises the 1987 value of
the U.S. net capital stock for nonresidential capital by 29 percent, to
$4.8 trillion. This alternative series also shows a slowing of net investment since the mid-1960s, although the relative growth rate differs, with somewhat slower growth before 1973, from the straightline measure and somewhat faster growth afterward.
Comparisons of foreign and U.S. net investment are even more difficult. According to official estimates of depreciation lives used to
produce national capital stock estimates, apparently similar kinds of
assets have significantly different durability across developed countries. For example, official estimates indicate that machinery and
equipment in the Japanese chemical industry last only 8 years versus
31 years in the United Kingdom.
Increased Competitiveness: Increasing foreign competition and labor
market accommodation were also factors stimulating increases in
output and productivity. Imports' share of U.S. markets in manufacturing increased from 8.3 percent in 1981 to 12.9 percent in 1986.




64

Inefficient producers left the market. The remaining producers
closed plants, cut back on excess labor, invested in higher technology
equipment, and improved inventory control and other management
procedures.
The impact was particularly large in durable goods manufacturing,
where imports' share of the U.S. market rose from 10.7 percent in
1981 to 16.8 percent in 1986. Durable goods productivity rose over 5
percent per year between 1981 and 1987, compared with 1.0 percent
between 1973 and 1981. In nondurable goods, where the imports'
share was lower and growing more slowly—increasing from 5.9 to
8.0 percent—productivity growth was more modest.
Shifts in the Composition of Labor: Manufacturing benefited from improvements in the quality and quantity of labor. Increasing competitive pressure forced U.S. industries to conserve on inventories, labor,
and capital. The labor force in manufacturing aged and gained experience. This labor force also benefited from the fact that manufacturing had kept up investment during the 1970s and, although part of
the investment was diverted to energy-saving capital and regulation,
some embodied new technologies. As a result capital-labor ratios in
manufacturing in 1987 were 45 percent higher than in 1973 and the
effective capital-labor ratio would probably show an even larger increase.
Work Effort and Marginal Tax Rates: Between 1981 and 1988 the top
statutory personal Federal income tax rate was reduced from 70 to
28 percent, while the top corporate rate was reduced from 46 to 34
percent. Marginal tax rates have been cut across the board. For example, a one-earner family of four earning twice the median income
has seen its marginal Federal income tax rate reduced from 43 to 28
percent. A one-earner family of four earning the median income has
seen its marginal tax rate reduced from 24 to 15 percent. Two-earner
couples have seen even larger cuts in their marginal tax rates.
The effect of cutting tax rates on incentives appears to have been
large. Although other factors clearly had a hand, an explosion of
small business growth has occurred during this economic expansion.
Small businesses have accounted for a disproportionate share of
overall job growth. Although they accounted for only about 50 percent of employment, between 1982 and 1986 they accounted for 64
percent of net employment growth. Proprietors' income, which had
been declining as a share of personal income throughout the postwar
period, has turned around, rising from 7.4 to 8.3 percent of personal
income. The share of taxes paid by the top 5 percent of taxpayers
increased from 34.9 percent in 1981 to 44.3 percent in 1986.
Regulation: Another boost to overall productivity has come from the
deregulatory process that began in the late 1970s. In transportation,




65

regulation has changed dramatically. The railroad, bus, trucking, and
airline industries have all become more efficient as a result. Problems
in measuring productivity gains in service industries seem to have obscured the gains in these industries. Because all sectors of the economy, including manufacturing, depend on the transportation system,
gains in this sector help the overall economy. Lower rates and improved services have permitted U.S. industry to reduce inventory
costs and adopt more efficient production techniques. Overall savings are estimated to be between $60 billion and $90 billion per
year.
Sector-Specific Productivity Improvements: Manufacturing has been the
leader in improving U.S. productivity growth. Manufacturing more
than accounted for the improvement in total nonfarm productivity.
The increase in manufacturing productivity stems from the reduction
in inflation and instability, improvements in incentives, increases in
competition, the aging of the labor force, high capital-labor ratios,
and the flexibility of U.S. labor markets.
There is some indication that manufacturing output and productivity have been overstated in the 1970s and the 1980s. Some observers
have pointed to this overstatement as evidence of deindustrialization,
noting that manufacturing's share of GNP may be overstated by 1 or
2 percentage points. Even if manufacturing's share were reduced
from 22 to 20 percentage points, this lower figure is well within the
range of normal variation in its share and just 1 percentage point
below manufacturing's postwar average GNP share.
A review of the data also suggests that whatever revisions are made
to manufacturing productivity data will not revise away the sharp improvement in manufacturing productivity since 1981. A large share of
the problem—to the extent there is one—is said to arise from an adjustment that lowered 1972 manufacturing output and raised its
growth rate for 1972-87. However, the largest impact of the adjustment on output growth occurred between 1972 and 1979, with little
impact on manufacturing productivity growth after 1979. Thus removal of the adjustment would make the recovery of manufacturing
productivity growth after 1981 look even stronger relative to the
1973-81 period. In addition, regardless of what revisions are finally
made to the 1973-81 period, manufacturing productivity growth of
4.1 percent in the 1981-87 period is a significant increase relative to
the 2.8 percent growth in the 1948-73 period. Finally, even if the
level of manufacturing productivity is lowered somewhat, because
manufacturing productivity is constructed separately from overall activity, the revision may simply lower manufacturing productivity and
raise nonmanufacturing productivity, leaving overall productivity
growth unchanged.




66

More fundamental problems exist with measured productivity
growth in nonmanufacturing industries than a possible mismeasurement between manufacturing and nonmanufacturing. Although the
nonmanufacturing sector has been growing rapidly, contributing
heavily to real GNP growth and increased employment, its productivity record in the 1980s has been weak. The weakness is something of
a puzzle. As can be seen in Table 1-3, not all the nonmanufacturing
industries have done poorly. The average growth rate in output per
hour in farming, mining, communication, utilities, and trade for the
past 6 years has been 3.8 percent. However, this growth has been
offset by slow measured growth in transportation and services and
negative growth in construction, the finance sector, and government
enterprises.
TABLE 1-3.—Growth in Value Added per Hour Paid, 1948-87
[Average annual percent change, except as noted]
1987
output
share 1
(percent)

Sector

1973
to
1981

1948
to
1973

1981
to
1987

Goods-producing:
Farm....
Mining
Construction
Manufacturing

2.4
3.8
57
271

4.6
4.0
6
28

5.2
-6.8
-27
1.3

5.2
5.2
-.6
4.1

170
10.2

2.4
3.4

1.1
1.7

5.2
2.5

Transportation
Communication
Utilities
Trade

4.4
35
34
213

2.3
52
59
27

_ 2
43
4
5

.7
53
14
24

Wholesale
Retail

94
119

31
24

— 1
5

35
18

107
161
1.5

1.4
22
-.1

-.4
3
12

-.7
4
-.9

1000

29

g

16

.

....

Durable manufacturing
Nondurable manufacturing

...

Service-producing:

Finance, insurance, and real estate
Services
Government enterprises

.

BUSINESS
1

Detail does not add to total because of rounding.
Source: Unpublished data from Department of Labor (Bureau of Labor Statistics).

Part of the explanation for this divergent performance in productivity may be that these slow and negative growth sectors accounted
for more than 65 percent of the job growth since 1981. As a result,
they have added a disproportionate share of young and inexperienced workers to their labor force. Capital-labor ratios have also
shown little growth in these industries, perhaps because of a substitution of labor for capital.
Measurement problems may also continue to exist in these rapidly
expanding areas. In the services and finance sector—which accounted
for more than 67 percent of total nonfarm employment growth—




67

output is extremely difficult to measure. The rapid rates of innovation in these industries make it difficult to identify quality changes or
to separate pure price changes from price changes arising from
changes in product characteristics.
Slow growth in measured productivity in transportation is related
to measurement problems in the airline industry. Deregulation has
produced lower fares and increased passenger miles per employee.
Most estimates indicate large net savings, yet productivity as measured by value added per hour worked appears to have fallen. This
clear contradiction of the evidence in airlines may be the result of the
problem of developing consistent deflators during a period when the
fare structure is rapidly changing. Today 90 percent of fares are sold
at discounts from full fare; in 1976, 85 percent of travelers paid the
listed full-fare price.
Construction offers another example of the problems of measurement. Value added per worker in construction stands at the same
level as in 1948. This poor productivity performance seems difficult
to believe given the development of prehung factory-made doors and
windows, factory-made trusses, aluminum siding, and more sophisticated construction equipment. Understatement of construction activity and inadequate price data have always posed a problem, and it
may be worsening.
International Productivity and Growth: A major question that arises in
looking at the productivity and growth experience in the 1980s is
why many of the other industrialized nations have not seen the recovery in productivity growth and output that the United States has witnessed. Part of the reason probably lies in their lack of labor market
flexibility. Employment, especially in Europe, has not recovered from
the contraction of the early 1980s. Unemployment among the Organization for Economic Cooperation and Development (OECD) nations of Europe is above 10 percent, and mandated benefits and high
marginal taxes make employers reluctant to innovate and expand
their businesses.
Strong growth of output and employment require flexible labor
markets that are free from rigidities and distortions. The flexibility of
U.S. labor markets contributed to the strong performance of the U.S.
economy. In many countries, especially in Europe, the flexibility of
labor markets has been reduced by restrictive work practices, excessive nonwage labor costs, rigid work rules, generous unemployment
insurance benefits, and burdensome job security arrangements. Such
distortions, along with high marginal tax rates in these countries, discourage job growth by driving a wedge between wages paid and
wages received while reducing the costs of remaining unemployed
and reducing labor mobility.




68

Most governments, as expressed in recent economic summits and
the OECD, now accept the importance of market flexibility and structural adjustment. This relatively new development is attributable to
the positive experience of the United States in the 1980s.
Market incentives form the basis for economic decisionmaking in
the United States. For example, wage negotiations between workers
and firms are voluntary, free of government intervention, and free to
take into account special regional and industrial factors. The imposition of government-mandated benefits raises the cost of labor, thereby slowing the growth of employment and raising unemployment. As
a result the young, inexperienced, and lower productivity workers,
whom mandated benefits are often intended to help, are among
those who are hurt.
Flexible markets ensure adjustment to changing economic circumstances. Flexible markets also promote dynamic adjustment. Admittedly adjustment can be painful for some workers and for some firms.
In the United States, for example, during the 1980s, the adjustment
of workers and manufacturing firms in many cases was especially difficult and costly. Some workers were displaced; the real earnings of
others declined, and company profits fell. These difficulties are best
dealt with by firms and workers, however, not the government. Government intervention slows the adjustment process and often does
not help workers in any real sense, but simply shifts the burden elsewhere.
Although labor market inflexibility helps to explain the poorer
growth and employment experience abroad, it does not help explain
why growth in other countries' productivity has not revived as it has
in the United States. The explanation may be that a slowdown in
growth was inevitable for these countries. During most of the postwar period it was relatively easy to raise productivity through new investments adapting U.S. technology. As the other nations' capital
stocks and standards of living have moved closer to those of the
United States, and as the U.S. technological advantage was reduced,
the other nations' productivity growth has approached the U.S. rate.
As the British and French found with the Concorde and the Japanese
with Beta videocassette recorders, innovation and new products are
riskier, slower, and more expensive than imitation.
Thus while other nations will continue to benefit from the postwar
free trade and stabilization programs of the United States, their
growth rates and levels of output will likely converge toward U.S.
rates and levels. Still, the United States continues to have the highest
standard of living of the major industrialized nations of the world,
and U.S. real income per capita and productivity still exceed that of
any of the other major industrial countries (Chart 1-10). Contrary to




69

popular myths, Japan still has a way to go to reach the level of per
capita income enjoyed by the United States, and its productivity is
only 70 percent of U.S. real gross domestic product (GDP) per
worker. It is clear that the United States is still the world's economic
leader. From this position the United States should continue to strive
to provide the free markets and stability that have allowed it and the
other market economies to succeed so well during the postwar
period.
Real GDP per Employed Person in the Seven
Summit Countries, 1987
1987 dollars
50,000

40,000 - $39,209

30,000

20,000

10,000

United
States

Japan

United
Kingdom

West
Germany

France

Italy

Canada

Note.—Data based on purchasing power parity exchange rates.
Source: Unpublished data from Department of Labor.

SOCIAL PERFORMANCE

Although the 1981-82 recession was costly, the inflation that
plagued the 1970s has been reduced dramatically. The expansion
that followed brought strong job growth, growth in real family
income, and increases in economic opportunity.
T^he economic expansion has improved the position of almost all
demographic groups. Real median family income is up 9.4 percent
since 1982. Black family income is up 10.5 percent, white family




70

income is up 9.0 percent, and Hispanic family income is up 3.9 percent.
Families across the distribution of income also showed gains. Between 1982 and 1987 families at the lowest fifth of the income distribution saw their income grow at a 1.4 percent annual rate, while
those at the top fifth saw theirs grow at a 1.9 percent annual rate.
Tax reform will offset part of the faster relative growth in the
before-tax money income of those at the upper end of the distribution. Tax reform cut low-income taxpayers' Federal income taxes by
65 percent, those in middle income groups by between 9 and 10 percent, and those in upper income groups by between 1 and 2 percent.
Tax reform eliminated taxes for about 4 million low-income taxpayers.
Economic expansion also helped to reduce poverty. The poverty
rate has declined from a postrecession high of 15.2 percent in 1983
to 13.5 percent in 1987. Unfortunately, the rising economic tide lifts
only those boats that are in the water. Despite the lowest unemployment rate in 14 years, the head of the household in more than 85
percent of all families in poverty did not have a year-round, full-time
job.
The continuing problem of poverty and dependency led to the
Family Support Act of 1988, which the Congress passed in an attempt to increase individual responsibility, training, and support for
low-income families. By strengthening provisions for child-support
enforcement, the act requires fathers to take greater responsibility for
their children. By introducing work requirements for those able to
work and by extending employment-related services, the act is intended to help the poor to escape poverty and become self-supporting.
The Job Training Partnership Act (JTPA) was another step in the
right direction. In contrast with the earlier Comprehensive Employment Training Act (GETA), where the bulk of the funds went for
payments to individuals, JTPA focuses on training. By law, the block
grant program—JTPA's largest program—must devote at least 70
percent of its funds to actual training compared with less than 20
percent under CETA. The JTPA provides training and job-finding
services, using a decentralized approach. It gives State and local governments the responsibility and discretion to work with the private
sector to train workers to meet local labor market needs.
These programs will certainly help, but much needs to be learned
about incentives and dependency. For this reason, the Administration
has assisted several States in undertaking welfare reforms designed at
the local level, and has encouraged these States to employ randomized assignment for the purpose of subsequent evaluation. If the




71

Nation is to learn about the complex processes that determine dependency and self-sufficiency, it must provide the best possible opportunity to observe program effects. The object of study is too important to view through the veil of fundamentally arbitrary adjustments for pre-selection and other factors. Certainly, of all the welfare-related investments the Nation might make, an investment in understanding should rank high on the list.
CONCLUSION
The lessons of the past suggest that solutions to economic and
social problems should place maximum reliance on free markets.
Government has a role in providing a stable macroeconomic environment, encouraging free trade and investment, providing basic public
goods and a social safety net, but lasting solutions are achieved when
private incentives encourage private solutions.
Subsequent chapters of this Report expound on this general theme
and the major functions that contribute to economic growth. Chapter
2 traces the role of fiscal policy in the 20th century, and especially
the postwar period, in stimulating growth. Chapter 3 examines the
role of international financial markets, capital movements, the international debt problem, and the role of international financial institutions in providing a framework for growth. Chapter 4 documents the
significant reduction in trade barriers in the postwar period and the
major contribution to growth that resulted. Regulatory issues and
their relationship to long-term growth are explored in Chapter 5.
Chapter 6 discusses the role of science and technology in increasing
productivity, which underlies so much of the Nation's increased prosperity. Chapter 7 reviews the accomplishments of the present expansion and presents the Administration's economic forecast.




72

CHAPTER 2

Fiscal Policy and Economic Expansion
SOON AFTER WORLD WAR II ended, the United States started
to put its economic house in order. The Federal Government committed itself in the Employment Act of 1946 to achieve for the
Nation maximum levels of income, employment, and purchasing
power. During the 1970s, however, the goals of the Employment Act
eluded the Nation. Reduced real income, widespread and persistent
unemployment, and the dollar's eroded purchasing power plagued
the country. During the 1960s and 1970s attempts were made to use
discretionary change in fiscal policy to stabilize the economy over
short periods. By concentrating on the incentives created by Federal
tax policy, this Administration redefined fiscal policy. The subsequent revitalization of the U.S. economy not only advanced the
Nation toward meeting the goals of the 1946 commitment, but also
led to a worldwide revolution in fiscal policy.
This Administration has pursued fiscal policy as part of a comprehensive program to reduce the role of the Federal Government in
the economy and expand the role of the private sector in economic
decisionmaking. The Federal tax system has been restructured by reducing marginal tax rates, indexing personal income tax brackets,
and strengthening incentives for private capital formation. Federal
Government expenditures have been subject to new controls to
reduce both their rate of growth and the Federal budget deficit.
These policies have contributed to the longest peacetime expansion on record. During this expansion real gross national product
(GNP) has increased 27 percent, and real per capita disposable
income has increased 17 percent. Since November 1982 the economy
has expanded, creating almost 19 million new nonfarm jobs and improving employment opportunities. Furthermore, inflation has been
reduced to nearly one-third of its 1980 level. During the past 8 years
the goals of the Employment Act of 1946 have been pursued through
policies that have encouraged sustained economic growth, job creation, and reduced inflation.
For much of the postwar era fiscal policy emphasized discretionary
changes in tax rates and Federal expenditures designed to regulate
aggregate demand in ways that compensate for fluctuations in private




73

spending. It is now widely recognized, however, that the ability of the
government to design and implement successful countercyclical fiscal
policies is limited even though changes in tax and expenditure policies do have the potential to influence aggregate demand and real
GNP. Government expenditure and tax policies are determined
through the political process, which inevitably means that attempts to
adjust aggregate demand to stabilize the economy are constrained.
As Chapter 1 explains, variable and sometimes long delays occur in
implementing discretionary changes in fiscal policy that limit their effectiveness in achieving timely adjustments in aggregate demand. Increased understanding of the effects of anticipations, such as expectations of changes in tax rates, on the timing of responses to fiscal
policy has further increased doubts about the stabilizing properties of
countercyclical fiscal policy.
The Federal budget has been in deficit throughout most of the
postwar era and consistently since 1970. Since 1946 Federal revenues
have rarely exceeded 20 percent of GNP. However, since 1970 the
trend in the rate of growth of Federal Government expenditures has
exceeded the trend in the rate of growth of tax revenues. While the
political process has kept Federal Government revenues within a
narrow range, fluctuating around 20 percent of GNP, the same process has also allowed Federal expenditures to expand as Federal entitlement programs grew. Persistent budget deficits are the result.
Since fiscal 1985 this Administration has been able to reduce Federal outlays and the Federal deficit as a percent of GNP. However,
further controls on Federal Government spending are necessary to
reduce the deficit and redress imbalances between investment and
domestic saving. Unfortunately, the growth in spending has not been
used for government nondefense investment, which has stagnated
since 1970 as a percent of GNP. The Federal Government has increasingly been borrowing to finance transfer programs and other
programs that fund consumption. The growth of Federal borrowing,
combined with a lower net private saving rate in the United States
since 1980, has given greater impetus to reduce government spending on consumption. Over the long run, fiscal policies can encourage
private capital formation through low marginal tax rates. The tax incentives of the 1980s have encouraged private investment. Foreign
saving has financed much of that investment. Further reductions in
the growth of Federal spending are necessary to encourage increased
national saving and to reduce U.S. reliance on foreign saving to finance domestic investment.
This chapter examines the evolution of fiscal policy in the postwar
era and recent changes in Federal tax and expenditure policies. It
discusses the rationale for moving away from countercyclical fiscal




74

policies to a fiscal policy that is primarily focused on the long-term
goals of improving incentives and increasing capital formation. The
chapter examines postwar changes in the structure of Federal Government spending and their effect on institutions, incentives, and
capital formation, and reviews tax policy over the past 8 years and its
influence on the economy. Finally, the chapter explores the Federal
budget deficit within the context of an overall fiscal policy designed
to encourage sustained economic growth over the long term.
THE EVOLUTION OF FISCAL POLICY IN THE POSTWAR ERA
Throughout much of the postwar era successive Administrations
have attempted to stabilize the economy through temporary changes
in Federal Government expenditure and tax policies. Yet great uncertainty has attended the timing and magnitude of the effects of discretionary fiscal policy on the performance of the economy. Forecasting
the fluctuations of the economy is difficult and imprecise. It is rarely
possible to know in advance when a recession will occur or when the
economy will be subject to increased inflationary pressures. The information necessary to prevent a recession or control an expansion
through fiscal policy may be impossible to obtain. Because of the uncertainties involved, attempts to use fiscal policy to fine-tune the
economy can be procyclical rather than countercyclical.
Discretionary changes in fiscal policy during the postwar era have
often taken place at the same time as changes in monetary policy.
Most major fiscal policy initiatives were announced well before their
actual implementation, virtually inviting anticipations of their eventual passage. Both the simultaneity of monetary and fiscal changes and
the effect of fiscal policy proposals on expectations complicate the
problem of measuring the timing and magnitude of their effects.
Lags between the proposal of a discretionary change in fiscal policy
and its enactment vary considerably. For example, a 13-month lag occurred between the initial proposal of the tax cut of 1964 and its passage. The Tax Reduction Act of 1975, however, was enacted after
only a 2-month lag. The success of fiscal policy in stabilizing the
economy can be sheer luck. Major tax cuts that result from broad political pressures for tax relief have sometimes been fortuitously timed
and have helped to speed an economic recovery. For example, the
Congress imposed a major tax cut in the Revenue Act of 1948 over
President Truman's veto; the cut moderated the recession of 194849, which began 7 months after the act became law.
Even if changes in fiscal policy are correctly timed, they can be ineffective in stabilizing the economy. For example, the temporary
income tax surcharge enacted in June 1968 failed to dampen con-




75

sumer spending. Consumers responded by reducing personal saving,
rendering negligible the impact of the tax surcharge in reducing inflationary pressures in the economy.
Some economists argue that tax cuts designed to increase aggregate demand with an unchanged level of Federal Government expenditures can result in an equal increase in saving. Empirical evidence indicates that much of a tax cut can end up as increased
saving, although consumption is generally increased also. Changes in
personal income tax rates in 1964 were largely offset by increased
private saving although lower tax rates did provide improved incentives. Similarly, in 1975 a tax rebate of up to $200 per family appears
to have gone initially into private saving rather than consumption. In
addition, stimulative fiscal policies are often said to put upward pressure on real interest rates and adversely affect private investment.
The effect of countercyclical fiscal policies combined with monetary policy on the price level is also a matter of concern. From 1960
to 1982, as described in Chapter 1, a higher price level and a higher
rate of inflation followed after each trough of the business cycle.
Fiscal and monetary policies should encourage steady economic expansion without contributing to inflationary expectations.
To a large degree Federal expenditures and receipts automatically
adjust to cyclical fluctuations in real GNP. Built into the Federal
budget are automatic stabilizers (such as unemployment insurance
benefits and payroll tax collections that vary with the rate of unemployment and a progressive rate schedule for income taxation) that
act to maintain aggregate demand when national income falls. Similarly, reductions in some components of government expenditure
and increases in tax collections under the Federal income tax system
act to restrain aggregate demand when it is increasing. These automatic stabilizers cushion the effects of cyclical fluctuations in the
economy and make an important contribution to moderating recessions and controlling upward pressure on the price level.
The success of a countercyclical discretionary Federal fiscal policy
designed to fine-tune the economy is difficult to measure. Because
changes in fiscal policy frequently occur at the same time as changes
in monetary policy and other changes in the economy, it is difficult
to isolate the separate influence of fiscal changes on the economy.
Uncertainties, difficulties in forecasting, and variable lags in implementing discretionary fiscal policies complicate the measurement of
the price and output effects of fiscal policy.
During the postwar period the Federal Reserve System and some
administrations have attempted to coordinate monetary and fiscal
policies to stabilize the economy. Despite the good intentions of policymakers, sometimes monetary policy has acted to frustrate the goals




76

of discretionary fiscal policy, and the combination of the two policies
has destabilized the economy. For example, the Revenue and Expenditure Control Act of 1968, enacted 11 months after it had been
proposed, was designed as an anti-inflationary tax surcharge. Yet
saving fell and the surcharge failed to reduce consumption. Given the
uncertainty of the macroeconomic situation at the time, however, the
tax surcharge, and the accompanying Federal expenditure ceiling
raised concerns about a recession. To reduce that likelihood, the
Federal Reserve allowed the money stock to expand rapidly. In this
case, monetary action proved more powerful than the fiscal restraints. The economy continued to boom and later to inflate. The
expansion in the money supply fueled inflation and inflationary expectations. In 1969 the Federal Reserve reversed course abruptly, reducing the rate of monetary expansion. The reduction in the rate of
monetary expansion contributed to the recession of 1970.
In the 1970s fiscal policies designed to trade inflation for employment contributed to increasing inflation without decreasing unemployment. Monetary growth in the 1970s set the economy on an inflationary course. Inflation contributed to higher effective marginal
tax rates on real personal and corporate income in the 1970s, thus
offsetting the effects of tax cuts and investment tax credits enacted at
the time. Expansionary fiscal policies embodied in the Tax Reduction
and Simplification Act of 1977 and the Revenue Act of 1978 were
designed to increase employment, but they probably added upward
pressure to the price level.
Excessive fiscal and monetary expansion during the period 197778 contributed to a further increase in the rate of inflation during the
period 1979-81 without producing a lasting decline in the unemployment rate. The unemployment rate was over 7 percent in 1981 while
inflation exceeded 9 percent, measured by the annual percent change
in the GNP implicit price deflator.
Discretionary fiscal policies designed to stabilize the economy in
the postwar era have as often destabilized the economy as contributed to stabilization. Recognizing its limitations, this Administration
has used fiscal policy as a long-term tool for achieving sustained economic growth. Fiscal policy can stimulate growth by controlling Federal spending and redirecting it toward government investment programs, and can encourage capital formation and labor force participation by lowering marginal tax rates to improve incentives for work
and investment. A cornerstone of such a policy is tax incentives to
increase net private investment. Reduction of effective tax rates on
capital income stimulates investment. Tax policies have encouraged
investment and have been effective in increasing net investment in
the United States since 1981.




77

THE GROWTH OF GOVERNMENT EXPENDITURES AND
REVENUES
An appropriate long-term fiscal policy concentrates on adjusting
the path of government expenditures and the tax structure to achieve
efficient use of resources and the goals of the Employment Act of
1946. The constraints on such a policy can be best understood
through examining the postwar growth of government and how Federal revenues have varied as a percent of GNP since 1947. The postwar era has experienced growth in spending at all levels of government. Chart 2-1 shows the upward trend in both total and Federal
Government spending as a percent of GNP.
Chart 2-1

All Government and Federal Expenditures as Percent of GNP
Percent of GNP
36

32
Federal, State, and Local Expenditures/'
28

,-x Ay---./

24

20

Federal Expenditures

12

0 I i I i I i I i I i i i I I i I I I I i I i i i \ i I I I i i i I i i i I i i i I I
1947
1951
1955
1959
1963
1967
1971
1975
1979
1983
1987

Calendar Years
Note.—Data are on a national income and product accounts basis.
Source: .Department of Commerce.

The postwar growth of government reflects increased demands for
government goods and services and increased Federal commitment
to provide income support and subsidized services for such groups as
the elderly, farmers, veterans, and the poor. Transfers to individuals
increased from 25.8 percent of government expenditures at all levels
in 1947 to a peak of 35.9 percent of expenditures in 1983.




78

Federal Government expenditures nearly doubled from 13.1 percent of GNP in 1947 to a peak of 24.7 percent of GNP in 1982. Since
1982 the share of GNP devoted to Federal expenditure has declined,
falling to 23.7 percent of GNP in 1987.
State and local government spending, excluding Federal grants-inaid, has grown more rapidly than Federal spending in the postwar
period. The percent of GNP absorbed by State and local expenditure
of nongrant funds has increased more than twofold. Government expenditures at all levels have increased from 18.5 percent of GNP in
1947 to a peak of 35.1 percent of GNP in 1982.
Chart 2-2 shows how Federal expenditures and receipts have
varied as a percent of GNP on a fiscal year basis from 1947 to the
present. From 1947 to 1969 Federal Government expenditures fluctuated from a low of 12.8 percent of GNP to a high of 20.9 percent.
From 1970 to 1983 Federal expenditures rose from 20.1 percent of
GNP to 25.1 percent. The same period was associated with increased
Federal commitment to programs that involved direct benefit payments to individuals that mainly finance consumption.
Federal receipts have fluctuated between 17.5 percent and 20.9
percent of GNP since 1951. Over the entire postwar period Federal
receipts have averaged 18.9 percent of GNP.
In practice the upper bound to Federal receipts in the postwar era
has been about 20 percent of GNP. In many instances in the postwar
era, tax relief legislation has followed when Federal revenues, as a
percent of GNP, have been at the upper bound of 20 percent. For
example, in 1947 Federal receipts were 19.7 percent of GNP. The
Revenue Act of 1948 became law in April 1948. When combined
with the fiscal effects of the 1948-49 recession, the Revenue Act of
1948 contributed to reduce Federal receipts to only 15.4 percent of
GNP in 1949. This was the postwar low. The Congress passed the
Tax Reduction and Revenue Adjustment Acts of 1975 after Federal
receipts again rose near 20 percent of GNP in 1974. It reduced taxes
in 1977 (Tax Reduction and Simplification Act of 1977) and again in
1978 (Revenue Act of 1978), when Federal receipts were 19.5 percent of GNP. While reducing average tax rates, however, these tax
reductions of the 1970s failed to reduce personal statutory marginal
tax rates.
In 1979, Federal receipts as a percent of GNP rose above 20 percent of GNP. The Economic Recovery Tax Act of 1981 (ERTA) provided a major tax cut designed to encourage long-term economic expansion. Federal tax revenues fell from 20.9 percent of GNP in 1981
to 19.3 percent of GNP in 1984. By 1987, growth in the economy
raised Federal revenues to 20.3 percent of GNP. Federal revenues
are expected to be 20.2 percent of GNP in 1988.




79

Chart 2-2

Federal Receipts and Expenditures as Percent of GNP
Percent of GNP
26

24
22
/\

Federal Expenditures

/

20
18
16
14
12 0>1 i i i i I i i i i I i i i i I
1947

1952

1957

1962

1967

1972

1977

1982

1987

Fiscal Years
Note.—Data are on a national income and product accounts basis.
Source: Department of Commerce.

The discrepancy between the growth in receipts and the growth in
expenditures has implied a growing trend toward Federal budget
deficits since 1970, which has made the Federal Government a net
dissaver. The deficit has resulted from a political system that failed to
contain Federal outlays but kept Federal tax collections below 21
percent of GNP. Administration fiscal policy in the 1980s has sought
to reduce Federal spending as a percent of GNP, while at the same
time reforming the tax system to improve efficiency and encourage
capital formation.

THE STRUCTURE OF GOVERNMENT SPENDING
Government expenditures can influence the rate of capital formation and future living standards by affecting both incentives and economic institutions. Subsidy programs that distort incentives can adversely influence economic performance by affecting labor force participation, work effort, and resource use. Similarly, a shift of govern-




80

ment spending away from investment can also reduce the future capital stock and living standards. Other things being equal, government
spending can influence consumption and investment in any given
year. If government expenditure displaces investment purchases, it
can lower future living standards. Government spending also affects
resource demands and influences relative prices of goods and services. It is therefore important to examine the structure of government spending to see how such spending affects both capital formation and incentives to use resources efficiently in the private sector.
Federal investment expenditures include purchases of both defense
and nondefense equipment and structures and outlays for research
and development activities. The Federal Government also finances
education and training that could be classified as investment in
human capital. From 1963 to 1975, Federal outlays for physical investment, including Federal grants to help State and local governments to finance capital investment and grants for research and development fell from one-third of Federal expenditures to less than 16
percent. Chart 2-3 shows the trend in Federal investment as a percent of GNP. From 1968 to 1974, Federal investment outlays fell
sharply both as a percent of Federal outlays and as a percent of GNP.
During the 1950s and early 1960s the Federal Government increased nondefense investment and spending for research and development as a percent of GNP. The government sector constructed
highways, including the Federal Interstate Highway System, and invested heavily in educational structures and urban infrastructure. The
Federal Government invested heavily in military weapons systems
such as B-52 bombers. Although essential for national security, investment in defense does not directly contribute to improved future
living standards in the same way as nondefense investment.
From the late 1960s to the early 1970s, Federal Government outlays for capital investment and for research and development plummeted both as a percent of total outlays and as a percent of GNP. By
1982 Federal outlays for investment as a percent of GNP were 60
percent of what they had been in the 1960s. The fall in the investment share of Federal spending is a matter for concern because it
can adversely affect the productivity of inputs in the private sector as
discussed in Chapter 1.
Federal nondefense physical investment and outlays for research
and development account for close to one-third of Federal investment outlays. Federal nondefense investment as a percent of GNP
grew from 1956 to 1966. After 1966 it first fell and then stagnated
through much of the 1970s and early 1980s. The decline after 1980
reflects in part a shift of responsibility for such expenditures to State
and local governments as real Federal grants were reduced. Federal




81

Federal Investment Outlays as Percent of GNP
Percent of GNP

Federal Investment

Federal Nondefense Investment

1950

1953

1956 1959 1962 1965 1968 1971 1974 1977 1980 1983

1987

Fiscal Years
Note.—Investment includes research and development, physical capital, and the investment component
of grants-in-aid to State and local governments.
Sources: Department of Commerce and Office of Management and Budget.

nondefense investment rose modestly from 1983 to 1986 but declined thereafter.
The postwar decline in the relative importance of Federal investment outlays parallels an increase in Federal direct benefit payments
to individuals. By and large, these benefits constitute transfer payments that finance consumption by recipients.
Chart 2-4 shows trends in five major categories of postwar Federal
Government spending as a percent of total Federal outlays. The rise in
transfer payments from a postwar low of less than 15 percent of
Federal expenditures in 1953 to a peak of 41.7 percent in 1983
represents a major redirection of Federal spending toward consumption. The relatively high level of transfer payments in the early
postwar period largely reflected the GI bill much of which went to
investment in human capital. Since 1950 the Federal Government has
expanded the level of support under old-age survivors and disability
insurance to increase cash transfers to the elderly and others on
social security pensions. In 1965 the Congress enacted the medicaid
and medicare programs to assist the indigent and the elderly in obtaining health care. Various government subsidy programs including




82

Chart 2-4

Federal Expenditures by Type

Percent of total

70

60

50

Transfer Payments

40

30

20

10
Net Interest
I i i i i I i i i i

1 947

1 952

1 957

1 962
1 967
Fiscal Years

1 972

1 977

1982

1987

Note.— Data are on a national income and product accounts basis. Total expenditures includes
subsidies less current surplus of Government enterprises and wage accruals less disbursements,
not shown separately.
Source: Department of Commerce.

fopd stamps and housing assistance also grew in the 1960s as did expenditures under the means-tested Aid to Families with Dependent
Children (AFDC) program. These direct-benefit programs provided
assistance to the aged, disabled, indigent, and disadvantaged, but
also distorted choices of recipients and reduced work incentives. The
subsidy programs encouraged consumption of medical care by reducing the price to recipients of such services below the costs of providing the services. The increase in social security pensions induced
many elderly to leave the labor force at an earlier date than they
would have otherwise. Expenditures for means-tested assistance under
AFDC and in-kind transfer programs may have discouraged the poor
from seeking employment and job skills, thus contributing to welfare
dependency. Under this Administration the growth rate of meanstested subsidies and transfers has slowed, while the share of payments
going to the most needy has increased.




Chart 2-4 shows that defense spending as a percent of total Federal expenditures experienced a sharp downward trend between fiscal
years 1953 and 1978, By 1978 Federal defense purchases fell to a
postwar low of less than 24 percent of total expenditures. Since
1980, defense expenditures have risen somewhat as this Administration has undertaken a program of investment to improve the Nation's
military preparedness and to maintain the U.S. role in ensuring international political stability.
One achievement of this Administration has been to reverse the
trend toward a declining share of GNP allocated to national defense.
From the mid-1950s to 1979, defense expenditures fell as a percent
of GNP. By fiscal 1978, defense expenditures were less than 5 percent of GNP for the first time since 1950. Since 1981 the Administration has emphasized investing in new defense capabilities to enable
the Nation to provide better for defense and to meet international
commitments. Defense spending has increased from 5.4 percent of
GNP in 1981 to 6.5 percent of GNP in 1987. Defense spending as a
percent of GNP is, however, still below the levels that prevailed from
1955 to 1965.
The most significant change in the composition of defense outlays
since fiscal 1981 has been a sharp increase in the ratio of investment
to noninvestment outlays. Defense investment consists of weapons
systems procurement, military research and development, and military construction. The ratio of investment to noninvestment defense
outlays had declined from around 0.75 in the early 1960s to below
0.43 in 1976, but has risen sharply since 1981 to more than 0.70 in
1987. The modernization of the Armed Forces has resulted in only a
modest increase in defense purchases as a percent of total Federal
outlays.
In summary, the postwar composition of government spending has
indisputably moved from defense and investment purchases to programs that transfer income and services to individuals. The effects of
these programs on incentives to work and to use resources efficiently
must continue to be scrutinized so that social objectives are achieved
in ways that minimize efficiency losses in resource use and consequent loss of output.
The decline in Federal nondefense investment could reduce future
living standards. Future administrations should consider expanding
programs of nondefense investment, including investment in infrastructure and education, to improve future productivity.




84

THE LONG-RUN VIEW OF FISCAL POLICY
Fiscal policy over the past 8 years has sought to establish an environment for continued expansion of the economy's long-run potential to produce goods and services. Reducing marginal tax rates,
eliminating tax preferences that distort incentives, and controlling
growth of government outlays can free up resources to be used more
efficiently to improve living standards in the United States. Chapter 1
showed that most economic groups have shared improvements in
living standards.
Fiscal policy over the past 8 years improved incentives to use resources efficiently in the private sector. Since 1982 real GNP has increased at an average annual rate of 4.2 percent. The expansion has
contributed to rising employment as a percent of the population and
has reduced the civilian unemployment rate below 5.5 percent. This
record of expansion has occurred even as inflation has dropped to
nearly one-third of its 1980 rate and as interest rates have fallen substantially since the beginning of the decade. In contrast with earlier
efforts to trade off inflation for employment, the use of fiscal policy
for long-term growth has succeeded in realizing high employment
with low inflation.
Productivity in manufacturing, measured from the business cycle
peak in 1981, has risen at a faster rate than the postwar average and
2.6 times the rate of increase achieved between the business cycle
peaks in 1973 and 1981, Tax policies designed to stimulate private
investment have helped modernize the capital stock in the manufacturing sector and have probably contributed to this impressive record
of productivity growth.
Taxation affects national well-being through its indirect effects on
private incentives. Taxes result in a reallocation of purchasing power,
but they can reduce incentives to use resources in the private sector
efficiently. A tax system that weighs heavily on income from capital
can adversely affect investment and the future level of income and
standard of living. Similarly, taxes can also distort the work-leisure
choice and impair work incentives, thereby causing losses in efficiency in labor markets.
A Federal budget that imposes high taxes on capital income to finance government consumption and private consumption through
transfer payments to individuals is likely to adversely affect capital
formation. Because taxes on capital income reduce the return to investment, they discourage private investment. The low economic
growth in the United States from 1973 to 1982 was in part a result of
fiscal policies that distorted the efficient use of resources and impaired incentives to save and work. Changes in tax policy since 1981




85

have improved incentives to use resources efficiently in the private
sector through lower statutory marginal tax rates on both personal
and corporate income and curbs on tax preferences that distort investment choices.
If the 1980 tax law were still in place today, Americans would
probably be paying considerably more than 20 percent of GNP in
taxes. Reduction in marginal tax rates and indexing of personal
income tax brackets for inflation have prevented the moderate inflation of the past 6 years from pushing taxpayers into higher tax brackets and paying larger shares of their real income in taxes.
Despite the reductions in personal and corporate income tax rates,
average Federal receipts as a percent of GNP have been higher in the
last 8 years than the average for the 1970s. In the 1970s Federal receipts averaged 19.3 percent of GNP, while from 1981 to 1988 Federal receipts averaged 20.0 percent. Much of the growth in Federal
receipts has resulted from economic expansion. Increased payroll tax
collections have also increased Federal revenue. This is the result of
higher payroll tax rates and increases in maximum wages subject to
payroll taxes.
Federal outlays still remain above Federal tax revenue. This difference requires that the Federal Government continue borrowing to
cover its budget deficit. Further controls on Federal outlays to
reduce the Federal budget deficit are required.
TAX POLICY AND ITS IMPACT ON THE ECONOMY IN THE
1980s
The Congress has enacted two tax acts of historic significance
since 1981: The Economic Recovery Tax Act of 1981 (ERTA) and
the Tax Reform Act of 1986 (TRA). These acts have resulted in a
fundamental restructuring of income taxation in the United States to
improve incentives to produce, save, and invest and to encourage
more efficient use of resources in the private sector.
The Economic Recovery Tax Act of 1981 reduced the top marginal
tax rate for individual income from 70 to 50 percent. It reduced marginal tax rates on given levels of nominal income for all tax brackets
while indexing personal exemptions, the standard deduction, and tax
brackets in 1985 to prevent bracket creep. The indexation of tax
brackets was designed to prevent future inflation from pushing individuals with no change in real income into higher tax brackets.
The act significantly reduced the average burden of taxation for
American families compared with what it would have been without a
change in the tax law. The tax reduction resulted primarily from a 23
percent across-the-board cut in marginal tax rates. Another provision




86

of ERTA was a special deduction for married couples designed to encourage labor force participation of both spouses by lowering the
marginal tax rate on earnings of the lower earning spouse. These
cuts in marginal tax rates acted to increase the incentives to work and
to invest. The act also encouraged household saving through special
deductions for retirement saving.
ERTA significantly changed the treatment of capital expenditures
to encourage private investment and research and development. The
accelerated cost recovery system and an increase in the investment
tax credit for some types of equipment allowed an increase in the
real after-tax rate of return for many types of investment. The provision to allow expensing of up to $5,000 worth of equipment in 1982
and 1983 is likely to have increased the return to all types of small
business investment. The Tax Reform Act of 1986 increased expensing of capital to $10,000 worth of equipment. Expensing allows businesses to deduct capital outlays as a current cost when calculating
taxable income.
Changes in the tax treatment of investment goods increased the
real rate of return to investment in the United States relative to that
in foreign nations and partially offset the distortions resulting from
the high inflation of the 1970s. ERTA significantly reduced the effective tax rates on all new depreciable assets, but was relatively more
favorable to investment in equipment and vehicles than to other
types of investment goods.
The Economic Recovery Tax Act sought to improve future living
standards by reducing the tax rates on capital income and encouraging investment. This historic change in tax policy sought to increase
the Nation's capital stock.
Unlike many of the tax cuts of the postwar era, ERTA was designed as a fundamental restructuring of the tax system rather than
as a temporary stimulus to aggregate demand. The Tax Equity and
Fiscal Responsibility Act of 1982 (TEFRA) scaled back some of the
investment incentives of ERTA by adjusting the accelerated cost recovery system in order to prevent cost recovery benefits from actually
exceeding those of expensing. Nevertheless, the ERTA-TEFRA reforms significantly reduced the effective tax rate on most investments. One estimate shows that ERTA sharply reduced tax rates on
capital by more than 50 percent, on average, compared with effective
tax rates prevailing in 1980. Despite the TEFRA changes that increased effective tax rates on capital (which in some cases was zero
or negative), these tax rates were still estimated in 1982 to be considerably below the levels that prevailed in the 1970s.
The Tax Reform Act of 1986 represented a broad overhaul, probably the most extensive in U.S. history, of the structure of both the




87

personal and corporate income tax. This act further lowered marginal tax rates on personal income and reduced the number of tax
brackets while broadening the tax base to prevent significant loss of
tax revenue. The act eliminated many tax preferences that distort
choices so as to improve efficiency of resource use. The revenues obtained from reducing wasteful tax preferences have allowed a reduction in statutory marginal tax rates for taxpayers so as to encourage
work effort and capital formation. The top personal marginal tax rate
effective in 1988 is 33 percent for taxpayers subject to phase-out provisions affecting the personal exemptions and the 15 percent bracket.
However, the top marginal tax rate for those in the highest taxable
income class is limited to 28 percent.
The Tax Reform Act of 1986 also resulted in a somewhat higher
effective marginal tax rate on capital income because it changed depreciation rules, the tax treatment of long-term capital gains, and repealed the investment tax credit. However, more uniform tax rates
on alternative types of investments also resulted from a change in depreciation rules designed to improve the allocation of investment.
Phasing out tax preferences such as the deduction of nonmortgage
consumer interest on personal income tax returns was designed to
change the allocation of private spending away from consumer durables toward business investment.
By reducing personal and corporate marginal tax rates, it has been
possible to reduce the Federal Government's drag on both growth in
the private sector and incentives. Reduction in personal and corporate income tax rates has not, however, resulted in a decline in Federal revenues as a percent of GNP because the tax base has been
broadened, the economic expansion has increased income, payroll
taxes have been increased, and wasteful tax preferences have been
eliminated. Nevertheless, the reduction in tax rates has served to
make disposable income greater than it would otherwise have been,
thereby allowing more private consumption and saving while encouraging private investment.
Research on the effects of U.S. personal tax rate reductions under
ERTA indicates that changes in taxpayer behavior that increased taxable income recouped as much as 40 percent of the revenue loss that
would have resulted from the tax rate cuts. Some evidence on the effects of the ERTA tax cuts indicates that the response to the reduction in marginal tax rates has been greatest for taxpayers in the highest tax brackets: as a result the share of income tax paid by the highest income groups actually increased. Annual taxes paid by taxpayers
with nominal taxable incomes of $200,000 or more increased by
nearly $10 billion in 1985 relative to what they would have paid had




88

no change in tax rates and no macroeconomic response to the
changes in tax rates occurred.
REDUCTION IN TYPICAL FAMILY TAX BURDENS

The tax reforms of the 1980s have prevented the Federal income
tax burden from increasing sharply for virtually all families. For example, had there been no tax changes during the 1980s, a married
couple with two dependent children with a single earner earning a
median income of $29,654 in 1987 and taking average itemized deductions would have paid $3,840 in Federal income tax. With the reduced tax rates this family's Federal income tax liability in 1987 was
actually $2,389. Such a family pays 38 percent less in personal taxes
than it would have were the 1980 tax law still in effect. The average
Federal tax rate for this family in 1987 was 8.1 percent. Were the
1980's law still in effect, this family would pay an average tax rate of
12.9 percent.
Two-earner families have enjoyed even greater savings. A family
consisting of a married couple and two dependent children, taking
average itemized deductions and earning the median income of
$38,022 for two-earner families of four in 1987, enjoyed a 51 percent
Federal tax cut. Such a family would have paid $5,009 in income
taxes were the 1980 law still in effect in 1987. The actual tax bill was
only $2,456, a tax cut of $2,553. The average tax rate for such a
family would have been 13.2 percent without tax changes since 1980.
With the tax changes of the 1980s this family paid only 6.5 percent
of its income in taxes. Table 2-1 shows how tax changes have affected one- and two-earner families with median income under assumptions about their average tax deductions. Estimates for 1988 show
similar tax savings after the provisions of TRA were fully in effect.
TABLE 2-1.—Income Tax Reductions: Current Law Versus 1980 Law, Median Income OneEarner and Two-Earner Families of Four
Median income one-earner
family of four
Taxes under

Year
Income

Current
tax law1

1980
tax law

Median income two-earner
family of four
Reductions
under
current
law1

Taxes under
Income

Current
tax law1

1980
tax law

Reductions
under
current
law1

1980
1981
1982
1983
1984

$20,429
21,690
22,777
23,885
25,561

$2,081
2,266
2,217
2,183
2,295

$2,081
2,295
2,487
2,691
3,003

270
508
708

8

$25,669
27,803
29,316
30,581
32,549

$2,227
2,605
2,333
2,150
2,313

$2,227
2,648
2,970
3,236
3,670

$0
43
637
1,086
1,357

1985
1986
1987
19882

25,849
28,388
29,654
30,863

2,284
2,591
2,389
2,626

3,087
3,574
3,840
4,106

803
983
1,451
1,480

34,469
35,336
38,022
39,572

2,541
2,598
2,456
2,737

4,129
4,353
5,009
5,393

1,588
1,755
2,553
2,656

1

"Current tax law" refers to the law in effect in year shown.
Estimated.
Sources: Department of Labor (median income data) and Office of Management and Budget.
2




89

The reductions in the marginal tax on labor income encourage
labor force participation particularly of second 'earners. Because TRA
reduced the difference between gross wages and net wages at the
margin, it provides workers with an incentive to increase their work
effort.
The act cut the average Federal tax rate paid by families with an
annual income of less than $10,000 by more than one-half, and it is
estimated that tax reform will reduce the number of low-income families paying Federal income tax in 1988 by more than 4 million.
TAX REFORM AND CAPITAL FORMATION

Under ERTA, capital formation was encouraged through measures
to increase both saving and investment. Stimulus to saving came
from reductions in marginal tax rates arid from availability of individual retirement accounts for a broad spectrum of taxpayers. Stimulus
to investment came from reduction in tax rates, accelerated depreciation, and investment tax credits. As shown in Table 2-2, ERTA was
followed by an improvement in the annual average growth rate of
U.S. gross domestic investment. Real gross domestic investment grew
at an average annual rate of 5.6 percent from 1980 to 1986 compared with an average annual rate of only 2.1 percent from 1965 to
1980. Compared with other major industrial market economies the
U.S. improvement in investment is impressive. Over the same period
gross domestic investment in Japan grew by only 3.2 percent per year
on average. As shown in Chapter 1, however, net investment in the
United States grew more slowly than gross investment because of a
shift to shorter lived assets during this period.
TABLE 2-2.—Growth of Real Gross Domestic Investment in the Seven Summit Countries, 1965-86
[Average annual percent change]

Country

1965 to 1980

2.1

France

...

United Kingdom
Italy

.

Canada

2
47
1 1

4.7

.

38

25

..

_ 1

12

West Germany

32

1.7

...

56

67

United States
japan

1980 to 1986

16

Source: The World Bank, World Development Report 1988.

The Economic Recovery Tax Act contributed to a reduction in effective rates of taxation of capital compared with levels existing in
the 1970s. Taxes directly influence the cost of capital, which is the
pretax return on a new investment required to cover the marginal




90

cost of the investment given the market rate of interest, the rate of
inflation, and the taxes levied on the income from the investment.
The cost of capital has been estimated in one study to be higher in
the United States than in several foreign nations. Although some
controversy surrounds these data, some estimates based on the 1985
Tax Code suggest that the cost of capital in the United States has
been about twice the cost of capital in Japan. The cost of capital in
the United States also exceeded the cost of capital in the United
Kingdom, but the estimated differential was not as great as that for
Japan.
The average difference between the gross and net rate of return
after taxes in the United States has been estimated to be more than 3
percentage points. Because corporate investments financed with
equity in the United States receive less favorable tax treatment than
do investments financed with debt, the taxes on equity-financed investments are higher than average. High taxes on capital income do
contribute to the differential in the cost of capital between the
United States and some foreign nations. Both the United Kingdom
and Japan, for example, have taxed capital lightly. West Germany,
however, has taxed capital income relatively heavily. The tax burden
on corporate equity capital in the United States has also been estimated to be relatively high, with the difference between gross return
and the net return after taxes running at 5 percentage points. According to one estimate, an investment financed with equity that cost
7 percent yielded only 2 percent after taxes in the United States in
the mid-1980s.
The United States taxes capital income through the personal and
corporate income taxes. In addition it now taxes realized capital
gains and generally taxes all such gains (except for those on principal
residences in most cases) as ordinary income. Reducing the tax
burden on capital income would contribute to attracting funds into
domestic capital formation in the United States.
Despite adjustment in the original ERTA rules in 1982, the act
represented a powerful incentive for investment. Its tax reforms contributed to a substantial increase in net fixed nonresidential investment in the first half of the 1980s. ERTA also contributed to an increase in the real after-tax net return on capital in the nonfmancial
corporate sector. Estimates indicate that ERTA also contributed to
an increase in the investment-to-GNP ratio. Further, lower inflation
resulting from this Administration's economic policies also has stimulated investment. The ERTA tax changes along with reduced inflation are likely to have been a major reason for increased productivity
growth in the 1980s and the improving competitiveness of U.S. manufacturing industries in international markets.




91

Under TRA the average effective tax rate on capital increased. This
increase arises mainly because TRA was designed to finance the cut
in the personal income tax burden with a rise in the corporate tax
burden. Despite its reduction in the top statutory corporate tax rate
from 46 to 34 percent, TRA's other provisions—such as elimination
of the investment tax credit and changes in depreciation rules—offset
the reduction in the tax rate and raised the cost of capital on average. Other things equal, the increase in the marginal effective tax
rate on capital resulting from the new Tax Code will act to reduce
investment. The act's other changes will even out the effective tax
rates on alternative investments, however, and thus moderate this
effect. The evening out of tax rates on alternative investments, combined with elimination of tax deductibility of consumer nonmortgage
interest, will provide incentives to allocate investment funds more efficiently. The economic effect of reduced investment due to the increase in the effective tax rate will therefore be offset at least in part
by improved efficiency in investment choices as distortions in the pattern of investment choices are reduced.
Overall, the tax reform is likely to increase net national product
after a period of adjustment. The new tax law will contribute to more
efficient investment patterns by eliminating tax shelters that have encouraged the purchase of assets for resale so that new owners can
redepreciate them.
Table 2-3 provides estimates of how TRA has influenced effective
tax rates on corporate and noncorporate capital investments compared with prior law. The average tax rate on investment has increased from 33.3 to 36.5 percent. The increase in the tax rate on
investment has been greater in the corporate sector than in the noncorporate sector. The new law has reduced the variance of effective
tax rates on alternative investments by more sharply increasing the
effective tax rates on investment in equipment relative to the increase
in the effective tax rates on structures, including owner-occupied
housing. The effective tax rates on land and inventories have fallen.
Despite the increase in the effective tax rate on capital investment
resulting from TRA, tax reform remains consistent with a fiscal
policy that encourages capital formation. Problems in the taxation of
capital income remain, however, because depreciation allowances,
capital gains, and interest income and expenses have not been indexed for inflation. Higher inflation would raise the effective tax rate
on capital, as it did in the 1970s. Some concern also remains about
the effects of the increase in the statutory tax rate on capital gains on
incentives to invest and to realize capital gains.
Lack of indexation of depreciation allowances, capital gains, and
interest will distort decisions by taxing nominal as opposed to real




92

TABLE 2-3,—Estimated Average Effective Tax Rate on Investment
[Percent]
Type of asset

Prior to TRA1

OVERALL TAX RATE ON INVESTMENT

33.3

36.5

Owner-occupied housing

22.5

23.7

Under TRA'

Corporate
Equipment

Prior to TRA'

Under TRA1

Noncorporate

10.0

Structures:
Nonresidential
Residential
Public utility

39.6

-11.9

25.4

34.4
49.5
32.6

•• •

43.1
52.5
44.5

27.8
38.2
22.1

31.4
40.6
33.6

48.8

45.8

33.0

30,5

Land:
Nonresidential
Residential

50.6
53.9

47.8
51.4

36.1
41.4

33.8
39.5

OVERALL WITHIN SECTOR

38.7

44.4

33.2

33.9

1

Tax Reduction Act of 1986.
Source: Department of the Treasury, Office of Tax Analysis.

capital income. In an inflationary environment, the effective tax rate
on real capital gains and investment purchases will increase, thereby
increasing the cost of capital. In an inflationary environment with no
indexation of nominal capital gains or depreciation allowances based
on historical cost, inflation biases an income tax toward consumption. To ensure continuing incentives for capital formation, therefore, inflation must continue to be reduced or depreciation allowances and capital gains and other inflation-sensitive income and deductions should be indexed.
In view of the positive response by upper income groups in realizing more capital gains after the ERTA tax reductions, some concern
arises about the effects of the increase in the capital gains tax rate
under TRA on tax revenue and investment incentives. The tax rate
increase is the largest applied to capital gains in the postwar era.
Some evidence now indicates that capital gains realizations are highly
sensitive to tax rate changes and to anticipation of such changes.
High tax rates on capital gains tend to lock investors into their portfolios because unrealized capital gains are not subject to taxation.
High tax rates on capital gains may also have long-term implications for capital formation and entrepreneurial activity. The capital
value of a new business typically rises as the business succeeds.
Owners of the business can receive income in the form of capital
gains through sale of equities in the business. Higher capital gains
taxation can, therefore, adversely affect the return to entrepreneurial
activity over the long run and further reduce incentives for capital
formation.




93

U.S. TAX STRUCTURE AND THE NEED FOR STABLE TAX RATES

The tax reform movement has spread worldwide. Spurred on by
the success of tax reform in the United States, many nations are reducing marginal tax rates and adjusting their tax systems to encourage capital formation and increase incentives to work. Following the
lead of the United States, most nations in the Organization for Economic Cooperation and Development have reduced marginal income
tax rates.
Other nations raise substantial revenue with national value-added
taxes on a base that explicitly excludes investment purchases. The
heavy use of payroll taxes, which are not levied on capital income,
along with consumption-based value-added taxes has contributed to
reduced tax burdens on capital per dollar of tax revenue in many of
those nations relative to the United States. Dividends in the United
States remain subject to double taxation—taxed as income to corporations and again as personal income to the stockholders. Most of the
European Community members have policies to relieve some of the
double taxation of corporate income. On the other hand, most of
these nations impose higher taxes on the use of labor.
The U.S. tax system still encourages investment in owner-occupied
housing. The effect of TRA on investment in homeownership is difficult to forecast. The reduction of marginal tax rates and reduction of
the number of itemizers will reduce incentives for homeownership.
Other provisions in the Tax Code, however, encourage homeownership. For example, in most cases capital gains from the sale of a
home still receive preferential treatment as does debt incurred to buy
a home relative to debt incurred to purchase other consumer durables. Interest on mortgage debt is largely tax deductible while interest on other household loans is not. In addition, imputed rent on
owner-occupied homes is not taxed. Some countries restrict the interest deduction for homeownership and some actually tax imputed
rent from homeownership. The United States still has a tax system
that distorts investment choices in favor of homeownership relative
to other investment opportunities.
In sum, the tax policies of the past 8 years have improved incentives for capital formation and efficient resource use. A consistent
long-term fiscal policy is necessary for the incentive effects of tax
reform to bear fruit. Stability in the tax structure is needed to maintain long-term incentives for capital formation and to improve efficiency in resource allocation. Future fiscal policy must avoid raising
marginal tax rates, which would reduce incentives for capital formation and lower future standards of living.




94

CONTROLLING FEDERAL OUTLAYS AND THE FEDERAL
BUDGET DEFICIT
During the past 8 years Federal taxes as a percent of GNP have
actually increased compared with average levels during the 1970s,
while marginal and average tax rates declined. In view of the harmful
effects of high marginal tax rates on private capital formation, a goal
of this Administration has been to reduce the Federal deficit by reducing the growth of Federal outlays. In fiscal 1987, Federal outlays
adjusted for inflation declined for the first time in 14 years. The
budget process must be reformed and Federal spending must be restrained to reduce the budget deficit further.
The Balanced Budget and Emergency Deficit Control Act of 1985,
as amended in 1987 (the Gramm-Rudman-Hollings Act) calls for a
balanced Federal budget by 1993. The Gramm-Rudman-Hollings Act
provides a framework for reducing the budget deficit through sequestration of funds when the budget deficit reaches specified trigger
levels. A sequester would involve permanent cancellation of budget
authority for a broad category of defense and nondefense programs.
Except for 1993, when the target is a zero deficit, the sequester triggers are $10 billion over the target deficits for each year. Table 2-4
shows the target deficits and sequester triggers for 1990 to 1993. In
the event of a recession, however, the Congress can suspend GrammRudman-Hollings for the remainder of a fiscal year or for the following fiscal year, or both, upon passage of a joint resolution.
TABLE 2-4.—Deficit Targets Under the Gramm-Rudman-Hollings Act, 1990-93
[Billions of dollars]

Fiscal year

Target deficit

Sequester trigger

1990

100

110

1991

64

74

1992

28

38

1993

0

0

Source: Gramm-Rudman-Hollings Act.

The "budget summit" in the fall of 1987 resulted in a 2-year, $76billion budget reduction package that for fiscal 1988 and 1989 complied with Gramm-Rudman-Hollings. Further reduction of the deficit
will require cutting inefficient programs to eliminate waste and perhaps relying more on user fees to shift the cost of particular services
from taxpayers to those who benefit from the service. Programs of
purely local benefit should be transferred to State and local governments. Gramm-Rudman-Hollings increases incentives for the Con-




95

gress to control spending, and as such represents an important contribution to reducing the deficit without raising taxes.
THE FEDERAL DEBT AND DEFICIT IN PERSPECTIVE

The deficit and U.S. national debt must be put in perspective. The
current government sector's net debt burden as a percent of GNP is
well below historical highs and is also well below the levels for several other industrial nations. The United States and other developed
nations have in the past prospered with government debt levels significantly higher than U.S. current levels without significant reductions in standards of living or growth.
Progress has been made in reducing the Federal budget deficit.
The Federal deficit has declined from 5,4 percent of GNP in fiscal
1985 to 3.2 percent of GNP in fiscal 1988 and is projected to decline
still further as a percentage of GNP.
The general government deficit in the United States is less than
the Federal Government deficit because State and local governments
in the aggregate have run budget surpluses in recent years. For example, in 1987 State and local governments in the aggregate in the
United States ran a $52.9 billion budget surplus; the nominal Federal
Government budget deficit that year was $157.8 billion. The net dissaving by governments at all levels that year therefore amounted to
$104.9 billion which was the combined government deficit on a national income and product accounts basis. This net dissaving by the
government sector amounted to 2.3 percent of GNP in 1987.
Chart 2-5 shows the 1987 net public debt of the government
sector and the general government deficit in seven major industrial
nations (the G-7) as a percent of the value of national production.
The U.S. net public debt is a smaller percent of the value of national
production than the net public debt of Canada, the United Kingdom,
and Italy and is not much higher than that of Japan and France. The
1987 general government deficit as a percent of the value of national
production in the United States was less than that for France,
Canada, and Italy in that year.
How to measure the Federal budget deficit is controversial. For example, inflation results in overstating Federal Government net interest payments. Assuming 5 percent inflation, a 7 percent nominal interest rate on the net Federal debt results in $70 of Federal outlays
for each $1,000 of net Federal debt. But $50 of the $70 represents
receipts to the Federal Government in the form of an "inflation tax"
on the holders of the net Federal debt. Government accounts treat
the payment of interest—the entire $70—as an expenditure but do
not record the inflation tax as a receipt. Adjusting the nominal deficit
for the inflation component of interest rates results in a real deficit




96

Debt and Deficit in the Seven Summit Countries in 1987
Percent of GNP/GDP

NET GENERAL GOVERNMENT DEBT

United
States

West
Germany

Japan

France

Canada

United
Kingdom

West
Germany

France

Canada

Percent of GNP/GDP (ENLARGED SCALE)
GENERAL GOVERNMENT DEFICIT

United
States

Japan

United
Kingdom

Source: Organization for Economic Cooperation and Development.

much smaller than the nominal deficit. This outcome occurs because
interest payments now constitute a substantial portion (about 14 percent) of Federal expenditures.
While lack of adjustment for inflation tends to overstate the deficit,
other omissions act to understate its real value. For example, Federal
Government loan and loan guarantee programs and insurance programs involve spending commitments that are not valued in the current budget. The cash deficit could increase substantially in a given
year if loan guarantees were to become due. Similarly, the recent experience of the Federal Savings and Loan Insurance Corporation illustrates how underfunded Federal insurance programs can possibly
require increased Federal outlays. A reserve or contingency fund accurately covering the value of expected losses under loan guarantees
and other unfunded liabilities of Federal Government agencies would
increase, and more accurately reflect, Federal Government spending
commitments.
The economic effects of government deficits are highly controversial. In any given year, the Federal budget deficit is a measure of the




97

nominal amount of Federal dissaving. The deficit is a concern of
fiscal policy because it could result in pressure to increase the money
supply, which would increase the price level. The deficit can also
contribute to a misallocation of resources through its effect on capital
markets and private incentives.
A deficit absorbs saving but actually affects the total saving in the
economy in a complex manner. Because the Federal deficit, interest
rates, output, and prices are parts of an interdependent system, it is
incorrect to assume that a dollar reduction in the budget deficit
would add an equal amount to gross saving. For example, in 1987,
despite a large decline in the Federal budget deficit, there was little
change in the balance of trade deficit, as real gross private domestic
investment rose and the personal saving rate fell, increasing aggregate demand and thus import demand. The balance of trade deficits
of recent years and consequent flow of foreign saving into the United
States constitute a combined result of forces influencing both the
government budget deficit and private incentives to save and invest.
The budget deficit cannot be singled out as the single cause of the
balance of trade deficit. Nonetheless, reduction in the Federal budget
deficit through spending restraint remains an essential component of
a strategy to reduce the balance of trade deficit.
A government deficit implies borrowing to pay for current government goods and services. Such borrowing can be justified if governments use the borrowed funds to provide investment goods that will
generate a stream of future benefits to offset the future taxes that
must be raised to pay interest on the borrowed funds. A deficit that
finances an increase in public or private investment outlays, as opposed to consumption outlays, can actually improve future living
standards. A complicated issue in analyzing the Federal deficit over
the long run involves determining how the deficit and the composition of government outlays, along with tax structure, influence capital
formation, resource use, and incentives to produce, save, and invest.
This discussion is not meant to minimize the negative influence of
the current budget deficit on capital formation. Although there are
disputes about estimated effects, studies indicate that the overall
effect of deficits in the postwar era has been to reduce U.S. capital
formation. These studies imply that future fiscal policy would improve future living standards by continuing to reduce the rate of government dissaving by controlling Federal Government expenditures.
THE SOCIAL SECURITY TRUST FUNDS* BUILDUP AND THE BUDGET DEFICIT

One of the more significant fiscal changes in the postwar era has
been the growth of social security and medicare benefits, their indexation for inflation, and the consequent increase in payroll taxes to fi-




98

nance these benefits. Legislation enacted in 1977 and in 1983 increased payroll tax collections and mandated future increases.
Annual payroll tax collections have begun to exceed annual payouts
for social security benefits. The social security trust funds have increased and are forecast to continue to do so until the second quarter of the next century. For a time the social security trust funds
buildup will increase Federal Government saving and contribute to a
decline in the Federal budget deficit.
Awareness of large projected old-age survivors and disability insurance (OASDI) trust funds' surpluses has resulted in some concern
about how the trust funds' surpluses might be used. Some observers
fear that the trust funds' surpluses will be used to finance other government spending or will offer a solution to reduce the deficit that
avoids the basic issues of cutting wasteful programs and improving
resource use in the economy. Although these concerns are valid, it
must be emphasized that the magnitude of the social security trust
funds' buildup has been overstated.
The OASDI trust funds constitute budget accounts, not cash.
When the trust funds are drawn upon to pay benefits, the Treasury
must raise cash. When spending for social security benefits in a given
year is less than receipts earmarked for those benefits, the excess receipts are loaned to the Treasury. The Treasury credits a special
issue Treasury bond to the OASDI trust funds and credits interest on
the bond at a rate equal to the average rate for marketable Treasury
securities of 4 years or more to maturity.
Payment of interest on the special issue bonds held by the OASDI
trust funds is merely an intragovernmental transfer. The interest
credited to the trust funds is a general fund liability of the Treasury.
In effect the Treasury issues a promise to pay the interest by making
a note in its books. Much of the buildup of the trust funds over the
next 30 years will constitute interest that the Treasury credits to the
funds in this way.
A proper view of future trust funds' surpluses requires adjustments
for inflation, for interest transfers to the funds that do not constitute
net income to the Federal Government, and for the forecast deficits
in the social security hospital and health insurance funds (HI). After
these adjustments, the surpluses are much smaller relative to the
Federal unified budget than unadjusted surpluses. Table 2-5 shows
projections of OASDI and HI surpluses and deficits, excluding interest credited to the trust funds, in both current dollars and 1988 dollars. The annual projected OASDI surpluses never exceed $75 billion
in 1988 dollars. The maximum OASDI surplus in the year 2005, after
adjustments, constitutes less than 7 percent of 1988 Federal spending. Adjusting for the forecast deficit of the HI fund shows that the




99

maximum surplus of the combined OASDI and HI trust funds in
2005 will amount to only $50 billion in 1988 dollars. This amount
equals less than 5 percent of current Federal spending.
TABLE 2-5.—Unified Budget Impact of Projected OASDI and HI Surpluses (Excluding Interest),
Selected Years, 1988-2065
[Billions of dollars]
Current dollars

Year

Total

OASDI

1988 dollars
Total

HI

OASDI

Ml

1988

40

32

8

40

32

8

2005

98

145

47

50

74

24

2025

-804

-329

475

187

76

110

2045

-3,544

-1,544

-2,000

-375

-163

-212

2065

11,328

-5,218

-6,110

-547

-252

295

Source: Department of the Treasury, based on Alternative II-B series in the 1988 Annual Report of the Board of Trustees of the Federal
OfrAge andSttnrms Insurance and Disability Insurance Trust Funds and data from the Social Security Administration.

These projections suggest that the windfall of funding coming
from the social security trust funds' buildup will not constitute a significant increase in purchasing power to finance other government
programs. In addition, as Table 2-5 shows, the surpluses in the trust
funds are projected to give way to large deficits later in the 21st century, as the population ages and payments for social security beneficiaries grow rapidly. By the year 2065 the deficit in the OASDI and HI
trust funds is projected to be $547 billion in 1988 dollars, an amount
representing one-half of total 1988 Federal spending.
As the number of retirees grows through the 21st century, the
social security trust funds will move into deficit and the Treasury will
have to raise cash to pay out the interest on the trust funds' securities. As the proportion of retirees to workers increases, larger portions of both GNP and Federal revenues will have to be allocated to
pay social security pension and health benefits. Taxable resources
will be needed to finance those benefits; fiscal policies must encourage real increases in capital formation that will create those resources
in the future.
A fiscal policy that encourages both private saving and private investment complemented by a reduction of the Federal deficit through
elimination of wasteful expenditures will act to increase capital formation. The prospect of the buildup of the social security trust funds
should therefore involve no significant change in fiscal policy. The
buildup itself will decrease government dissaving and thereby temporarily increase the availability of funds for private investment. Increasing tax rates to increase government saving could undo the effects of tax reform on incentives to invest, and thereby do much to
discourage private capital formation. If increases in tax rates to en-




100

courage government saving discourage sufficient private capital formation, they will be self-defeating.
Economists generally agree that saving must be encouraged to increase the tax base to fund future social security benefits. Disagreements arise about the best way to accomplish these objectives. The
view of this Administration is that a consistent long-term fiscal policy
designed to keep marginal tax rates low and provide incentives for
work effort, saving, and investment remains the best way to encourage future capital formation. The growing real social security trust
funds' surplus should not be used as an excuse to expand Federal
Government outlays.
Social security pension benefits and finance are matters with which
the Nation must grapple in the future as the population ages and the
proportion of retirees to workers continues to increase in the 21st
century. Retirees will consume growing portions of national output.
Unless the elderly are encouraged to remain in the labor force as
productive workers, or the real level of the social security pension
benefits is cut, the best way to finance the consumption of future retirees—without devoting the major portion of the Federal budget to
that end—is to encourage saving and investment now to increase taxable real income in the future.
INSTITUTIONAL CHANGE TO CONTROL FEDERAL OUTLAYS TO REDUCE
THE DEFICIT

Mechanisms to curb spending increases are a key component in a
fiscal policy designed to bring Federal outlays in line with a tax
burden of no more than 20 percent of GNP. Gramm-Rudman-Hollings provides a framework for reducing the deficit through 1993.
Over the long term, however, institutional changes in the budgeting
process might be desirable to control the growth of government outlays.
Some economists have proposed dividing the current unified
budget into an operating budget and a capital budget. The Federal
budget now presents a comprehensive statement of anticipated cash
outlays and cash receipts lumping together consumption and investment outlays for the current fiscal year. Separating capital expenditures from operating expenditures could more clearly link operating
receipts with operating outlays, which would, in turn, more clearly
identify the operating deficit or surplus of government. A capital
budget would also link investment outlays with borrowing and provide a basis for linking payment for government debt-financed investments with taxes on future taxpayers. Further, a capital budget would
distinguish borrowing used to finance capital investments from borrowing to finance current consumption. Capital budgeting could pro-




101

vide information necessary to plan an increase in the investment
component of government spending.
Unfortunately, problems involved in actually implementing a capital budget for the Federal Government more than offset its possible
advantages. A capital budget would significantly reduce the constraints on total government spending and make it more difficult for
the Administration and the Congress to formulate fiscal policy. Total
Federal spending would no longer be shown; the budget would no
longer provide a comprehensive comparison of total Federal spending for different programs and purposes. Because a capital budget
would record depreciation in place of capital expenditures, only a
small fraction of the cost of a proposed capital purchase would be
apparent to policymakers deciding about the overall level and composition of government spending. This would greatly increase the incentive for the government to purchase capital goods.
Conceptual and practical measurement problems also arise. Rules
would be needed for depreciating Federal assets, for valuing government assets and measuring its liabilities, and for identifying types of
outlays that constitute capital formation, e.g., whether to include in
the capital budget education and other programs that build human
capital. Care would have to be taken to avoid losing control over
government spending, deficits, and debt by categorizing current programs as capital expenditures, by using inaccurate depreciation rates,
or by introducing costly programs with small, initial outlays. Thus, a
capital budget could lead to renewed increases in the growth of
spending. For these reasons, the Administration has opposed proposals for a separate capital budget.
The Administration favors adoption of a line-item veto. A line-item
veto would enable the President to veto individual items in appropriations bills, subject to the current provisions for overriding a veto
of any bill. Effective use of a line-item veto would give future Presidents more flexibility in pursuing fiscal policies to encourage capital
formation. The President could selectively veto wasteful new government spending programs that increase consumption without sending
an entire appropriation bill back to the Congress. The line-item veto
would discourage the Congress from enacting wasteful spending programs that are not in the national interest. Such a provision could
forestall special-interest programs that benefit a few at the expense
of many taxpayers.
A balanced budget and tax limitation amendment to the Constitution offers a comprehensive form of restraint to control spending.
This approach would change the rules under which decisions are
made to borrow or to increase Federal outlays and receipts relative
to GNP. One proposal would require that total outlays not exceed




102

total receipts unless three-fifths of the whole number of both Houses
of Congress votes to break that rule. Other approaches seek to limit
the growth in Federal outlays to the growth in real GNP. An amendment could place similar restraints on the national debt, prohibiting
increases unless a substantial portion of the Congress voted in favor.
These limitations would help to establish an institutional framework
that creates incentives for limiting Federal spending. Constitutional
limitation would require political compromise to cut the rate of
growth of Federal outlays and to keep spending in line with the public's willingness to pay taxes. Further, constitutional limitation would
help to change the way in which decisions are made. Under a constitutional limit, everyone agrees to limit demands on government in
exchange for a commitment that others will be bound by the same
limit. Proposals for increased spending would be compared with current spending, and policymakers would have to pay increased attention to the merits of alternative programs. Constitutional spending
limitation would bring fiscal discipline.
CONCLUSION
The challenge of the future is to enact reforms that adjust institutions and incentives to reduce the growth of Federal outlays and increase both public and private investment. By doing so the Federal
budget deficit can be reduced and the government sector can make a
greater contribution to increasing the Nation's rate of capital formation and improving its standard of living.
The Nation must avoid the temptation to increase marginal tax
rates to reduce the Federal budget deficit. To raise marginal tax rates
on labor and capital income would adversely affect the incentives to
work and invest that are the foundation for improved future living
standards. The reduction of the Federal deficit through reducing
spending represents an important component in a policy to increase
national saving. However, deficit reduction must not come at the expense of incentives for private capital formation.




103




CHAPTER 3

Growth and Evolution of International
Capital Markets
IN THE SUMMER OF 1944, representatives of the Allied Powers
convened at Bretton Woods for an ambitious purpose: to plan a financial system for the postwar world. In the 44 years since that meeting in New Hampshire, world trade and capital flows have changed
course dramatically. A revolution in currency exchange markets occurred. By the end of the 1970s, vast changes in national economic
conditions and policies had almost sundered international economic
relations. In the 1980s the current Administration took stock. The
policy changes it proposed not only revitalized the U.S. economy, but
also brought the Nation renewed respect in the international arena.
The United States has played a central role in the evolution of
international capital markets throughout the postwar period. Immediately following the war, loans, aid, and direct investment flowed from
the United States to assist the ravaged economies of Europe and
Asia. At the same time, the United States assumed a leading role in
the system of pegged but adjustable exchange rates designed at Bretton Woods. By providing this leadership and by fostering a stable
worldwide market system and encouraging the opening of markets in
goods and assets, the United States reinvigorated the world economy.
The reward for these efforts has been enhanced opportunities for
the United States. World output and trade have flourished. The successful recovery of the war-torn economies and the entry of many
newly industrializing and developing nations into the international
arena have meant a revision in the role of the U.S. economy in the
world. Yet the United States remains a world leader, and U.S. policies of free markets, low tax rates, low inflation, and reduced government regulation have resulted in a robust, productive economy that
stands as an example for the rest of the world.
The road to the 1980s has been replete with lessons about international trade, capital, and currency markets. Beginning in the 1960s
divergences in sovereign policies affecting domestic inflation and
output growth eventually led to results inconsistent with the exchange-rate regime initiated at Bretton Woods—a system of pegged




105

but adjustable exchange rates. In the early 1970s the flaws in the
Bretton Woods system proved insurmountable and the industrial
world adopted a regime of floating exchange rates in its stead. Subsequent large swings in the value of the dollar have led to renewed
debate regarding international monetary arrangements. The value
lost by the dollar in the 1970s was more than made up, and then lost
again, during the 1980s. Swings in the international cost competitiveness of U.S. manufacturers mirrored those of the dollar's real value
in the 1980s. Yet the flexible exchange-rate regime has weathered
without crisis three recessions in the United States, sizable oil shocks
and even war between two major oil-producing nations, rapid increases and decreases in inflation, and most recently a significant
shift in the international pattern of trade balances. Although flexible
exchange rates exhibit substantial short-run variability, they provide
efficient and timely signals to markets and governments when actions
and policies go awry.
During the 1970s the traditional trade and current account surpluses of the United States, correlatives of net U.S. lending to the rest of
the world, gave way to intermittent external deficits. Since 1982 the
external deficits have become persistent and amplified. Trade and
current account deficits represent important channels through which
an economy can acquire the resources needed to take advantage of
profitable investment opportunities. They can also reflect current
consumption out of previous saving. Trade deficits can arise when an
economy's households and firms react to distorted incentives to consume today by borrowing from abroad at the expense of future generations. Whether the trade deficits of the 1980s signal promise or
trouble for the current and future well-being of the United States is
an important and difficult question.
Between 1918 and the mid-1970s, and particularly in the period
following World War II, the United States built up large international asset holdings as the counterpart to its annual current account surpluses. By the 1980s that pattern of international capital flows had
changed. The gradual acquisition of U.S. assets by foreigners at a
faster rate than the United States has acquired similar assets abroad
has resulted in a reversal in the U.S. net foreign asset position as officially measured. According to official estimates, since 1985 the total
value of foreign holdings of assets in the United States in the form of
direct investments, common stock, and bonds of all kinds has exceeded the total value of holdings by U.S. citizens of similar assets
abroad. This imbalance is often described as the net debtor position
of the United States, even though many of these assets involve equity
claims rather than debt. Although difficulties of measurement cast
some doubt on the accuracy of official estimates, there is little doubt




106

that the net international asset position of the United States has decreased in the 1980s.
The consequences of the United States becoming a net debtor
have been hotly debated. Unlike the troubles of many indebted developing nations, the ability of U.S. citizens and the U.S. Government
to maintain their contractual obligations is not a concern. The United
States continues to have the largest aggregate wealth in the world,
and its creation of new wealth remains strong. Nevertheless, some
have argued that its current financial position increases the temptation for U.S. policymakers to induce an inflation, reducing the real
value to foreigners of their dollar-denominated claims. Others argue
that it erodes U.S. leadership in the world economy. Neither development is a necessary consequence of a net debtor position. By adhering consistently to this Administration's policies of noninflationary
growth, the United States can continue as a world leader, and the
dollar can remain a reliable and widely held currency.
During the 1980s many developing countries have experienced
grave difficulties in managing their external debts. The problems of
debtor nations have frequently been compounded by high-tax, inflationary, and confiscatory policies that have handicapped their domestic economies, reduced trade and investment, and led to capital
flight. In addition, these policies have created insufficient incentives
for debtors and creditors to reach voluntary, market-oriented agreements. Private and official creditors as well as international agencies
have increasingly devoted resources to renegotiating the terms of existing debt and providing debt relief appropriate to the individual
borrower. By maintaining incentives conducive to voluntary, countryspecific negotiations between creditors and debtors and continuing
to support domestic economic reform, the United States can encourage the design of innovative approaches that resolve the problem.
The issues of the international economy involve policy choices and
the need to develop a framework to produce growth in world living
standards for the coming years. Stable and growing economies require smoothly functioning financial markets. It is to that issue that
this chapter turns first.

THE BEHAVIOR OF EXCHANGE RATES
Since the inception of floating exchange rates in the early 1970s,
the nominal values of many currencies have swung widely. As indicated by the U.S. Federal Reserve Board staff index, between the beginning of 1970 and the end of 1979 the dollar declined 29 percent in
value against a trade-weigh ted basket of the currencies of 10 major
industrial countries. The deutsche mark rose 78 percent on a trade-




107

weighted basis during this period, while the currencies of many other
nations also moved substantially relative to those of their trading
partners. In the third quarter of 1980 the dollar turned around,
rising 83 percent in value until the first quarter of 1985. Since then it
has again declined, returning approximately to its 1981 level.
These dramatic changes have been the subject of much discussion
and investigation. Major issues include the causes of the swings, their
implications for the U.S. competitive position in world markets, their
effects on trade balances, and the question of whether the regime of
flexible exchange rates has well served the increasingly complex
system of international trade in goods and assets.
THE PURCHASING POWER OF THE DOLLAR

A rise in the nominal value of the dollar does not necessarily mean
that the dollar can buy more foreign goods. For example, if the dollar's rise is accompanied by a foreign inflation of equal magnitude,
each dollar buys more of the foreign currency but no more of the
foreign goods than before. Alternatively, if the dollar's appreciation
is matched by a decline in the U.S. price level while the foreign price
level remains unchanged, the rise in the value of the dollar signals an
increased power of the dollar to purchase foreign goods, but not relative to the increased power of the dollar to purchase U.S. goods.
A broad measure of the dollar's relative purchasing power abroad
can be derived from dividing the number of foreign goods that a
dollar can buy by the number of U.S. goods that a dollar can buy, or
equivalently by dividing the product of the U.S. price level times the
foreign exchange value of the dollar by the foreign price level. A rise
in that measure, called the real or inflation-adjusted exchange rate,
would signal that a dollar could purchase more foreign goods relative
to domestic goods than before. Alternatively, it would imply either
that foreign inflation had not proceeded as quickly as the dollar's
value rose, or that the pace of U.S. inflation exceeded the appreciation of the dollar. In either case, the real value of the dollar would
rise—that is, the dollar's purchasing power abroad relative to its purchasing power in the United States would increase. Real exchange
rates can change for a variety of reasons, including country-specific
changes in productivity, thrift, taxation, and the efficient use of resources.
Chart 3-1 shows indexes of the nominal and real exchange rates of
the U.S. dollar in terms of trade-weighted baskets of foreign currencies and consumer price indexes of 10 major industrial countries.
The real value of the dollar has closely paralleled its nominal value,
suggesting that, at least in the short run, the forces giving rise to exchange-rate movements are not matched by offsetting changes in in-




108

flation, either here or abroad. For example, the dollar's 20 percent
decline from the second quarter of 1976 until the third quarter of
1980 was accompanied by a 16 percent decline in its real value, or
purchasing power.
Nominal and Real Exchange Rates
Index, 19731=100

150

140
130
120
110
100

90
80
70

Real Exchange Rate2
i ill 1 1 1 1 n 111 n h T 1 1 1 1 1 1 1 M 1 1 1 1 1 1 1 1 1 1 1 1 i 1 1 1 1 1 1 i f i n 1 1 1 1 1 1 1 1 1 1 1 1 1 1

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

Multilateral trade-weighted value of the dollar against the currencies of the other G-10 countries plus
Switzerland.
product of the nominal exchange rate times the U.S. consumer price index divided by trade-weighted
consumer prices of the other G-10 countries plus Switzerland.
Source: Board of Governors of the Federal Reserve System.

Although exchange-rate movements have not tended to be perfectly offset by changes in domestic or foreign price levels during the
recent floating rate experience, exchange rates do respond to the relative price changes of the countries in question. There is no reason
for bilateral exchange rates to reflect exactly all price level movements. The broad pattern of relative inflation across countries tends,
however, to influence the long-run behavior of exchange rates.
Chart 3-2 shows indexes of relative price levels and nominal bilateral exchange rates for three major U.S. trading partners: Japan,
West Germany, and the United Kingdom. In each case, relative price
levels are measured by an index of the ratio of the implicit deflator
of foreign gross domestic product (GDP) or gross national product
(GNP) to the U.S. price level. The exchange rates and price ratios for




109

each individual country are indexed to equal each other in 1973, the
starting point of the flexible exchange-rate regime. Although the
units on the vertical axis are arbitrary, upward (downward) movements of the price ratios reflect rapid (slow) foreign inflations relative to that of the United States. Upward movements of the exchange
rate reflect increases in the nominal value of the dollar, and vice
versa.
The chart shows that, although exchange rates are more volatile
than relative price levels, exchange rates tend in the longer run to
fluctuate roughly around the ratio of the price levels. Shifts toward
relatively rapid inflation in the United States raise U.S. prices relative
to prices abroad and tend to be accompanied by a declining dollar.
Slowdowns in U.S. inflation rates relative to those abroad tend to be
met with dollar appreciation, as are periods of relatively rapid inflation abroad.
There is no reason to expect bilateral purchasing power parity—
that is, to expect exchange rates and the ratios of the price levels of
the paired countries to move together at all times. As can be seen in
the chart, the relationship is far from exact. In the short run, ratios
of price levels may not determine the exchange rate. This lack of
concordance may be partly because a substantial share of goods and
services is not internationally traded. In addition, it may be partly because exchange rates, as the relative prices of two assets, reflect the
market's expectations about future relative inflations more rapidly
than current price levels of goods and services respond to these pressures. The pronounced short-run deviations from purchasing power
parity between the United States and its trading partners correspond
to changes in the real exchange rate, which reflect a variety of influences.
Changes in the real value of the dollar have no single cause.
Changes in relative productivity, in relative thrift, efficiency, and risk
make domestic assets more or less valuable. Changes in tax rates also
alter the after-tax returns on assets. Market participants compare the
expected, risk-adjusted after-tax real returns available all over the
world. If expected risk-adjusted real returns rise abroad relative to
the expected returns at home, demand for foreign assets increases
until the expected real returns reach equality. The shifting of
demand from one country's assets to another's entails shifts in the
demands for the domestic and foreign currencies used to purchase
the assets. The exchange rate adjusts to these changes in demand as
in any other open market.
Any government policies that influence the price level, growth
rates, or interest rates will affect exchange rates. Incentive-based
fiscal policy, which affects a country's standard of living or alters the
incentive to invest, will be reflected in exchange-rate movements.




110

Chart 3-2

Exchange Rates and Relative Prices

Index, 19731=100

220

200

JAPAN

180
160
140

1201

Relative Prices

100
80
60
I i ill i i il i i i h i ill i i IM , 1

40

Index, 19731=100

220
WEST GERMANY

200

180
160
140
120

100
80
60

Exchange Rate2
I I I II I I I I T I h 1 1 I 1 T

40

Index, 1973N100
220^
UNITED KINGDOM

200
180

Relative Prices1

160

.140
120!
100
Exchange Rate2

80
60
40

i h iiIi
1973

1975

11111 i iM111111
1977

19719

ilntli
1981
1983

ih
1985

linl
1987

1
Ratio of GNP|impl|icit price deflator for Japan and |West Germany (GDP implicit price deflator for
United Kingdom).to U.S. GNP implicit price deflator.
2
Foreign exchange value bf the dollar.
Sources: Department of Commerce, International Monetary Fund, and Council of I Economic Advisers.




in

Moreover, changes in government purchases relative to GNP may
also induce relative price and real exchange-rate adjustments.
Influences that can lead to a decline in the value of the dollar include a rise in the rate of growth of the U.S. money supply relative to
U.S. output, or a fall in the rate of growth of the foreign money
supply relative to foreign output. Differences in these rates of change
result in eventual declines in the rate of foreign inflation relative to
that in the United States. The expectation of that fall in relative foreign inflation can trigger immediate movement of the exchange rate,
as market participants attempt to shift from dollar-valued to foreignvalued assets. The decline in relative foreign interest rates, reflecting
the market's reassessment of the relatively lower foreign inflation, reinforces the relative desirability of holding foreign currency by reducing the interest earned abroad that is forgone by holding money.
Although substantial evidence confirms the persistence of deviations from purchasing power parity, the tendency of bilateral exchange rates to return to the relative price ratios over long periods
may indicate the presence of long-run market forces to return to approximate purchasing power parity. Because many of the goods and
services whose prices are averaged in the consumer price indexes are
not directly traded internationally (for example, many personal services and housing), some of the delay may reflect the time it takes for
travelers and immigrants to shift their demands to the countries with
lower relative prices. Given the length of time that is apparently involved, an alternative explanation is that by giving rise to shifting
demand, large deviations from purchasing power parity pressure governments to revise their economic policies in the direction of longrun parity between the price levels. These policies include monetary
and fiscal policies, as well as changes in incentive-based measures
such as tax rates.
Under a system of floating exchange rates, U.S. policies alone are
not the only determinants of the value of the dollar. The experiences
and policies of other nations—the rates of growth of their real
output, money supplies, tax rates, and interest rates—affect the value
of the dollar as much as U.S. policies do. The United States can help
to keep the foreign exchange value of the dollar stable by controlling
its own inflation, but this approach will work only to the extent that
U.S. trading partners pursue similar policies. Four historical examples of these principles are worth examining, and can offer the opportunity for some insight about the floating exchange-rate system
and exchange-rate stability.




112

PEGGED AND FLEXIBLE EXCHANGE RATES: RECENT HISTORICAL
EXPERIENCES

The broad features of the experience of the past 20 years tell much
about exchange rates. This period breaks up logically into two separate subperiods. The first, beginning in the middle 1960s and ending
in 1973, covers the demise of the Bretton Woods regime of pegged
but adjustable exchange rates. The second covers the flexible exchange-rate regime, focusing on the wide swings in the value of the
dollar.
The Foundering of the Bretton Woods System

Toward the end of the 1960s, pressures built that led ultimately to
the breakdown of the Bretton Woods regime of pegged but adjustable exchange rates. In 1967, money growth picked up sharply relative
to output. As discussed in Chapter 1, the increase reflected the combined pressures of U.S. Government expenditure for the Great Society and the Vietnam war and the operating rules of Federal Reserve
policy—particularly interest rate targeting. The result was U.S. inflation. In addition, under the structure of the pegged exchange-rate
regime, the excess money flowed abroad, raising foreign money
stocks and price levels.
Both because of the rules of the Bretton Woods Agreement and
the reputation the United States had acquired in steadfastly maintaining those rules during the postwar period, foreign countries continued to treat the U.S. dollar as a reserve currency at the historical par
value of $35 per troy ounce of gold. Moreover, many countries were
reluctant to see the Bretton Woods system change. Foreign central
banks accepted the extra dollars at par value even though the fractional gold reserves behind each dollar had declined.
In response to the ensuing U.S. balance of payments deficits, the
United States intensified its capital controls. Differing real growth
rates throughout the world in the early postwar period had already
contributed to pressure on the dollar. As early as 1963, the United
States had imposed the interest equalization tax on securities and longterm bank loans sold in U.S. markets by developed countries (except
Canada). In 1965 additional controls were imposed on capital flows
from banks and financial institutions, and in 1968, the United States
made mandatory controls on direct investment abroad that had previously been voluntary. These measures distorted investment incentives
and did not address the source of the problem.
In 1968 the U.S. balance of payments deficit worsened and by
1969 U.S. official reserve holdings were substantially reduced. As
citizens of foreign countries turned in their dollars to their own cen-




113

tral banks, the foreign countries further increased their own money
supplies, increasing inflation overseas. International pressure on the
United States to change its monetary policy built up. The threat to
tender the dollars against the insufficient supply of U.S. gold made
the pressure credible. On August 15, 1971, President Nixon suspended the right of foreign central banks to convert the dollar into gold.
The system established at Bretton Woods ended.
In an effort to stem the continued domestic inflation and capital
outflows without addressing the rapid growth in money relative to
output that was their fundamental cause, President Nixon simultaneously imposed wage and price controls and a 10 percent import
surcharge when he suspended gold convertibility. These stopgap
measures decreased market efficiency by distorting relative prices,
and further contributed to the difficulty of economic adjustment.
New exchange-rate parities were set at levels that were determined
by the Smithsonian Agreement in December 1971. The plunge in the
dollar's value halted, but that arrangement lasted little more than a
year. By then it had become abundantly clear that the U.S. balance of
payments deficits were attributable to U.S. economic policies that
were fundamentally inconsistent with the fixed exchange-rate system
and the maintenance of low inflation. In March 1973 the monetary
authorities of the major industrial nations decided to let their currencies float freely against the dollar, either individually or in currency
groups such as the European "snake." Between March and September 1973, the dollar fell by 5 percent on a trade-weighted basis, reflecting in part the accumulated pressures from 6 years of excessive
growth of money relative to output.
The Bretton Woods system went far in the postwar years in the direction of its goals of both price and exchange-rate stability. In the
course of time, however, it achieved neither aim. The system relied
on the conduct of U.S. monetary policy, but provided insufficient incentive to carry out policies consistent with the maintenance of the
goals of the regime. When the United States failed to conduct its
monetary policy in a manner consistent with price stability, while several key currency countries were reluctant to accept inflation rates
commensurate with continued exchange-rate stability, the system was
unable to withstand the pressures that built up. Given the conduct of
U.S. monetary policy, the inherent design of the system forced foreigners to choose between price and exchange-rate stability. They
chose to let exchange rates be determined in international markets.
The Bretton Woods system was one of pegged but adjustable exchange rates. From its inception it was subject to currency revaluations and devaluations. In the 1960s the system came to be regarded as crisis prone, reflecting the increasing frequency and magnitude




114

of exchange-rate changes as countries adopted and persisted in uncoordinated economic policies. Changes in the rate of growth of one
country's money supply relative to its output, unmatched by corresponding changes abroad, caused excess capital to flow out of the
country that incurred relatively rapid monetary growth. When these
changes were not reversed, they resulted either in a balance of payments crisis, with a decline in the international reserves held by the
authorities of the country inducing the relatively rapid monetary
growth, or in a currency devaluation to staunch that decline.
The Flexible Exchange-Rate Regime

Under a completely flexible exchange-rate regime, changes in the
international reserve holdings of central banks are obviated, because
a currency's value adjusts to the forces of supply and demand in
international markets. The chief distinction between flexible and
fixed exchange-rate systems lies in the institutional tradeoff between
exchange-rate movements and international reserve movements.
What matters most is not the system, but the stock of money relative
to domestic output. The money stock changes as a result of monetary
policy, and output may change as a result of such real factors as
changes in productivity or demographic changes affecting thrift or
labor force participation. These are the main determinants of the expected course of the exchange rate and the long-term movements of
the price level.
Under a flexible exchange-rate system the monetary authorities
may intervene to prevent the currency from declining in value. In
order to succeed, they must necessarily stabilize the rate of money
growth relative to the growth of output. If intervention reduces central bank holdings of both international reserves and money in order
to change market anticipations about the thrust of monetary policy, a
central bank can change the exchange rate. The essential element is a
credible change in the growth of money relative to output. In contrast, sterilized exchange-market intervention, which changes the mix
of international reserves and domestic assets held by central banks
without changing the stocks of money relative to output at home and
abroad, has no lasting effect on exchange rates. This process changes
the distribution of assets in government and private portfolios. The
main effect is to change who bears the risk of fluctuations in foreign
or domestic asset prices.
Three changes in the value of the dollar characterized the experience of flexible exchange rates: the decline in the dollar's value
during the middle to late 1970s, its appreciation until March 1985,
and its subsequent depreciation. The dollar depreciation in the
second half of the 1970s reflected the continuation of the rapid U.S.
monetary growth relative to output begun in the late 1960s, com-




115

pounded by increasing reliance on policies that attempted to
fine-tune the economy. The stop-go pattern of policy became more
pronounced in early 1973, when the rate of growth of M2 fell sharply. The oil price rise later that year was met with direct controls on
the domestic price of oil. These actions ultimately produced a slowing of the rate of price increase and a halt to the dollar's decline, but
they exacerbated the economy's difficulty in adjusting to the reduction in income implied by the change in international oil prices. The
ensuing recession of 1974-75 led to increasing efforts to boost employment and output by expanding monetary growth and reducing
taxes. As monetary growth in the United States accelerated in an
effort to lean against the recessionary tide, U.S. inflation soared. At
the same time, several major U.S. trading partners, most notably
West Germany and Japan, allowed domestic oil prices to adjust to
world levels and consciously restrained their money supplies to focus
on the longer run. The value of the dollar plummeted, dropping 16
percent between the first quarters of 1976 and 1980, the period of
the highest postwar U.S. inflation.
During this period the Carter Administration had proposed a
policy known as the "locomotive theory." Foreign governments were
expected to adopt monetary and fiscal policies consistent with the expansionary policies of the United States in an effort to increase aggregate demand. Many foreign countries, fearing inflation, were reluctant to stimulate their economies in this manner. The episode
ended with continued domestic inflation and a decline in the value of
the dollar without achieving the desired outcome.
When in 1980 Ronald Reagan cast his pre-election support to
the new regime of monetary control, the expectation of pronounced
reduction in inflation resulted in a turnaround in the value of the
dollar. The new U.S. tax incentives introduced in the Economic Recovery Tax Act of 1981 (ERTA) encouraged domestic investment
and capital accumulation and raised expected after-tax real rates of
return. Productivity increases in the United States resulted in an appreciation of the real value of the dollar, as the dollar's purchasing
power increased relative to that of the currencies of many U.S. trading partners. Capital inflows to the United States responded with renewed vigor to the higher anticipated U.S. real after-tax rates of
return. These higher expected real rates of return were reflected in
real and market interest rates. The shifting of assets toward the
United States reinforced the rise in the nominal exchange rate begun
in 1980.
The resulting unprecedented rise in the dollar's value, as can be
seen in Charts 3-1 and 3-2, continued until the first quarter of 1985;
that is, throughout approximately the same period that the U.S. eco-




116

noniic recovery, revised growth incentives, monetary restraint, and
reduced inflation led similar advances abroad. During this period, the
dollar rose in value against all major U.S. industrial trading partners,
including the United Kingdom, whose economic recovery began
earlier but whose reduction in inflation was unable to match this
Nation's, and West Germany, which continued to exercise its traditional monetary restraint but whose economic growth rate was usually
below that of the United States.
In late 1984 U.S. monetary policy eased markedly. At the same
time, widespread anti-inflation policies abroad accelerated. In March
1985 the dollar began to decline. In the 7 months between the dollar's peak and the Plaza Agreement of September 1985, which announced the intentions of the G-5 countries (France, Japan, the
United Kingdom, the United States, and West Germany) to engage in
coordinated economic policies and to regard some further dollar decline as appropriate, the trade-weighted value of the dollar declined
12 percent. The U.S. monetary expansion continued through the end
of 1986, contributing to the continued decline in the dollar's value.
Changes in tax rates at home and abroad reinforced the decline in
the dollar's value. Foreign marginal tax rates were lowered as other
nations began to emulate the successful U.S. policies of the early
1980s. At the same time, the Tax Reform Act of 1986 reduced the
relative incentive of U.S. citizens to invest in the United States by
raising the effective tax rate on capital investments. As discussed in
Chapter 2, it also provided more uniform treatment of alternative
types of investment purchases. The elimination of the deductibility of
nonmortgage interest on personal income tax returns encouraged
some shifting of private spending away from consumer durables and
toward business investment. Notwithstanding these mitigating forces,
the real value of the dollar fell until early 1988.
Compared with the Bretton Woods system of pegged but adjustable exchange rates, the system of flexible exchange rates has functioned smoothly. The upheavals of the 1970s and 1980s, including
two large oil price shocks, sharp changes in the relative prices of
other commodities, and rapid relative movements in the patterns of
international monetary and output growths of the period, were registered in wide swings in exchange rates. Crises in international reserves and speculative attacks in anticipation of dollar devaluations
were nevertheless avoided. The market's depreciation of the dollar
during the 1970s was a symptom of the rapid domestic inflation. As
discussed in Chapter 1, it was also a symptom of the market's uncertainty about the future stance of U.S. monetary policy, given the
stop-go reactions of the Federal Reserve to the events of the period.
During the 1980s the market's assessment of real factors, such as




117

changes in relative output growth, productivity, and marginal tax
rates, have played a dominant part in determining exchange rates.
A frequent comment is that real exchange rates have been more
variable in the fluctuating exchange-rate period than under the Bretton Woods regime. Some observers interpret the increased variability
as evidence that the international economy has become less stable.
This conclusion is unwarranted. Changes in real exchange rates are
the means by which the economy adjusts to changes affecting
demand and output. Increased variability of real exchange rates is
entirely consistent with greater economic stability and reduced fluctuations in output, employment, and the price level. Studies of variability in output and prices under fixed and flexible exchange rates suggest that despite the oil shocks, inflation, and then disinflation of the
1970s and 1980s, leading countries have reduced variability of prices
and output in the flexible exchange-rate era.
THE DOLLAR AND COMPETITIVENESS

Wide swings in the value of the dollar in excess of U.S. and foreign
inflation differentials have had pronounced effects on the cost competitiveness of American manufacturers. Dollar depreciation during
the late 1970s raised the dollar price of imports relative to other domestic prices and temporarily shielded many trade-sensitive industries from foreign competition. The 10 percent real depreciation of
the dollar between the first quarter of 1977 and the second quarter
of 1980 allowed some manufacturing industries to remain temporarily profitable despite substantial increases in real wages and relatively
slow productivity growth. This temporary insulation from foreign
competition that dollar depreciation provided left many trade-sensitive industries unprepared to deal with heightened competition in the
1980s.
The unprecedented surge in the dollar's value during the first half
of this decade resulted in a marked loss in the international cost
competitiveness of U.S. industries. This loss occurred because foreign exporters to the United States could—and did—charge a lower
dollar price to cover the same level of home currency costs when the
dollar appreciated. Between the second quarter of 1980 and the first
quarter of 1985, a period when the inflation-adjusted dollar price of
a trade-weighted basket of currencies of 10 major industrial countries
fell by some 37 percent, the price of nonpetroleum imports relative
to U.S. producer prices declined by 18 percent. Although the aggregate data appear to suggest that foreign producers took advantage of
the surge in the dollar to boost both sales and profits, more can be
learned by examining the dollar prices of individual categories of imported goods.




118

Table 3-1 shows price indexes for several categories of U.S. nonpetroleum imports divided by the producer price index for finished
goods. The indexes are relative to a base of 100 in the second quarter of 1980. Between the second quarter of 1980 and the first quarter
of 1985, the dollar price of industrial supplies and materials imports,
relative to producer prices for finished goods, declined by 28 percent,
while the relative prices of capital goods (excluding autos) and consumer durables imports declined by 26 and 19 percent, respectively.
By contrast, the relative price of consumer nondurables imports fell
by only 10 percent, while the relative price of auto imports rose by
11 percent. This divergence in relative import prices reflects several
factors, including the weakness in world commodity prices during
this period, technological advance in the production of capital goods,
and, as discussed in Chapter 4, the imposition of nontariff barriers in
the U.S. auto and textile industries. Apart from the impact of nontariff barriers on the dollar prices of autos and textiles, however, it
would appear that much of the real appreciation of the dollar during
the first half of this decade was in fact passed through to the dollar
prices of imports.
TABLE 3-1.—The Dollar and Import Prices Since 1980
[198011 = 100]
Item

1985 1

1988 III

Dollar price of foreign exchange1

63

Nonpetroleum import prices2

82

97

72

83

Capital goods except automobiles

74

92

Consumer durables

81

99

Consumer nondurables

90

109

111

133

Industrial supplies and materials

Automobiles

84

1

Dollar price of the trade-weighted currencies of the foreign G-10 countries plus Switzerland adjusted for changes in
consumer prices in the foreign countries and the United States.
2
Ratio of the GNP fixed-weighted price index to the producer price index for finished goods.
Sources: Department of Commerce, Department of Labor, International Monetary Fund, and Council of Economic Advisers.

Because of the passthrough of the dollar's real appreciation to
dollar import prices, U.S. manufacturers lost sales to their foreign
competitors. This loss happened despite the fact that unit labor costs
were rising more slowly in the United States than abroad, the result
of exceptional productivity gains and modest wage increases in U.S.
manufacturing. Specifically, unit labor costs in U.S. manufacturing
rose only 9 percent during the first half of this decade (and have actually fallen since 1982) while, in national currency terms, average
unit costs in the nine largest foreign industrial countries rose nearly
18 percent. When measured in dollars, however, unit labor costs in




119

these nine other industrial economies fell just over 13 percent. Instead of experiencing a solid 9 (18—9) percent improvement in
international cost competitiveness between 1980 and 1985, the surge
in the value of the dollar brought about a 22 ( — 13—9) percent decline in relative cost competitiveness of U.S. manufacturers, measured at current exchange rates. This decline was in line with the relative price declines of capital goods and consumer durables.
The real depreciation of the dollar that has occurred since March
1985 has, in conjunction with continued rapid productivity growth
and modest wage increases, restored the international cost competitiveness of many U.S. manufacturers. In particular, relative unit labor
costs measured in dollar terms are now lower than they were in
1980. Although dollar import prices responded with a longer-thanexpected lag to the real depreciation of the dollar—actually continuing to fall on average until the fourth quarter of 1986—manufacturing output and exports rose in 1987 and 1988 as higher prices for
foreign goods shifted domestic and foreign demand toward U.S.
goods.
As can be seen in the table, between the first quarter of 1985 and
the third quarter of 1988 the inflation-adjusted dollar price of foreign exchange has risen 33 percent—that is, to 84 percent of its base
in the second quarter of 1980. The dollar price of imported capital
goods relative to the producer price index for finished goods rose 24
percent, reaching a level last recorded in the first quarter of 1981.
Similarly, the relative dollar price of imported consumer durables
(excluding autos) has jumped 22 percent, and is now about the same
as in 1980. Reflecting the weaker dollar and, perhaps, the voluntary
export restraints on Japanese cars and the quotas on textile imports,
the relative dollar prices of imported automobiles and consumer nondurables have soared, and are now respectively 33 and 9 percent
higher than in 1980. By contrast, the relative dollar price of industrial supplies and materials has risen 15 percent since the first quarter
of 1985, reflecting the modest but incomplete recovery in commodity
prices that has occurred in recent years. In short, the relative dollar
prices of nonpetroleum imports have risen substantially in response
to the real depreciation of the dollar and, excepting industrial supplies and materials, are currently near or above their levels in the
second quarter of 1980.
To summarize, the real appreciation of the dollar, and not sagging
productivity growth or other commonly alleged causes, was the primary source of the deterioration of the international cost competitiveness of U.S. manufacturers during the first half of this decade.
Moreover, cost competitiveness has been restored for many industries in line with the dollar's depreciation. The jump in dollar import




120

prices discussed above has had a modest, one-time effect on the price
level; but, contrary to the predictions of some commentators, dollar
depreciation has not set off another round of accelerating inflation.
This effect is not surprising because, in the context of appropriate
monetary policy, real exchange-rate changes represent relative price
changes that can ultimately change the price level, but not the economy's long-run inflation rate.
These observations do not imply that the United States can, or
should, rely solely on exchange-rate movements to improve further
its competitive position. Real exchange-rate depreciation can increase
competitiveness in the intermediate run by making imports more expensive, but at the cost of slower domestic real income growth than
would otherwise result. In contrast, policies to promote more rapid
productivity growth should be actively pursued. Faster productivity
growth will boost both international competitiveness and real standards of living.
INTERNATIONAL POLICY COORDINATION UNDER FLEXIBLE EXCHANGE
RATES

Economic theory and the recent exchange-rate history both suggest
that monetary and fiscal policies, through their effects on inflation,
inflationary expectations, and real output, are important influences
on nominal exchange rates. To achieve a stable value of the dollar
requires not only predictable and restrained monetary policy along
with sustainable real growth in the United States, but also similar
economic conditions abroad. To the extent that wide swings in the
value of the dollar are appropriate market responses to changes in
these underlying international economic conditions, exchange rates
can serve as signals of improved prospects or deepening problems in
these underlying factors. Under a fixed exchange-rate regime, data
on international reserve flows have to serve this same role. Although
exchange rates are not perfect signals, they are generally more informative indicators than quantities, such as reserve flows.
Disturbed by the recent large exchange-rate swings, officials from
many countries and other observers have expressed their desire for
greater exchange-rate stability. They have sought to find ways to increase the coordination of sovereign policies in order to help stabilize exchange rates. As shown in many studies, however, including
those commissioned by the Versailles Economic Summit in 1982,
direct sterilized exchange-market intervention has proved to be of
limited value in reducing exchange-rate variability.
Some groups of countries have tried an adjustable peg—notably
the European Monetary System (EMS), which ties several currencies
together but allows some variability within pre-arranged bands. This




121

system requires either a common monetary policy to keep inflation
similar or strict capital controls to limit precipitate intercountry asset
flows. Otherwise countries must accept periodic adjustment in their
exchange rates. Smaller countries tend to fix their exchange rates to
those of larger developed nations. As is evidenced by repeated realignments within the EMS and repeated devaluations of the currencies of some developing nations, an adjustable peg system contains
all of the inherent drawbacks of modern fixed exchange-rate regimes.
The inability to enforce compatible sovereign monetary and fiscal
policies is a key deficiency of these systems.
A promising approach for increasing the stability of exchange rates
focuses on the coordination of domestic policies toward inflation and
economic growth. Under this approach, the leading industrial countries adopt mutually compatible economic policies to achieve sustained growth with low inflation. Direct exchange-rate coordination is
not required to achieve these principal benefits.
If fully enacted, plans for a single internal market in the European
Community by 1992 could contribute to increased stability of exchange rates within Europe by encouraging international competition, which will help to keep domestic policies in line across countries. Some European leaders have suggested that the 1992 reforms
be followed by reforms leading toward the use of a single European
currency. If widely used in place of existing monies, a common currency would require a unification of monetary policies. A common
currency is not necessary, however, to achieve the benefits of the
sweeping reductions of economic barriers proposed for Europe in
1992.
No country acting alone can achieve both price and exchange-rate
stability. Larger countries that achieve domestic price stability provide a public good: smaller countries can then fix their exchange
rates to those of the larger countries and achieve greater price and
exchange-rate stability. For the larger countries, disturbances to exchange rates caused by differences in actual or anticipated inflation
can also be reduced, and exchange-rate stability can increase. A
policy of this kind does not require elaborate control procedures.
The benefits can be achieved if each of the major countries adjusts
its money growth rate to be consistent with sustained growth at
stable prices in its domestic economy.
This arrangement provides the opportunity for countries to choose
increased price and exchange-rate stability. Bretton Woods produced
this result to a degree and for a time, and the prosperity of the
period showed that benefit is to be had. Nevertheless, the inability of
the Bretton Woods system to weather the strains of changing sovereign goals suggests that an overarching system of pegged but adjust-




122

able exchange rates will not serve the world as a whole as well as the
current system of free choice in forming exchange-rate arrangements.
Productive policy cooperation among countries includes not only
consistent monetary and fiscal policies, but also vigilant reduction of
market rigidities and barriers to trade in both goods and financial
assets. Recent discussions among developed countries with regard to
the plans for Europe in 1992 and at the Organization for Economic
Cooperation and Development (OECD) indicate increasing regard
for reducing the institutional, policy-supported, and structural rigidities that slow or even prevent market adjustments to a rapidly changing world. Postwar institutions such as the General Agreement on
Tariffs and Trade (GATT) and the International Monetary Fund
(IMF) have also devoted themselves to reducing such market imperfections. In the case of GATT, direct reductions in tariffs as well as
in import and export quotas have expanded trading opportunities
throughout the world and have increased the communication among
trading nations. The IMF, whose original role as defined at Bretton
Woods was to finance temporary payments imbalances under the
regime of fixed exchange rates, has taken a strong stance in favor of
market and trade liberalizations for countries to which it has extended loans. Progress on these fronts has been made, though much
more remains to be achieved.
EXPORTS, IMPORTS, AND TRADE BALANCES
During the 1980s the United States experienced trade deficits relative to output of a persistence and magnitude that have not been
seen since the past century. The increasing external deficits of the
1980s were not associated with rapid inflation, as were the trade deficits of the late 1970s; nor did they weaken the economy or portend
the dire economic consequences that some feared. On the contrary,
the trade deficits of the 1980s reflected the relative strength of the
U.S. expansion. Both real exports and real imports of goods and
services have risen on average since the last quarter of 1982. The
excess of imports over exports during that period provided U.S. citizens with additional consumption and investment goods to satisfy the
demand generated by relatively rapid U.S. real growth. Until early
1985 that effect was reinforced by the strong dollar, which lowered
the relative price of these imports.
External trade deficits necessarily imply inflows of capital. Whether
the ultimate consequences of these inflows benefit the United States
depends on how the resources are used and on whether there is a
bias toward consumption in the United States. Such a bias could arise
as a result of distortions inherent in the tax system, in regulation, or




123

in government spending. Government spending and transfers shift
toward consumption some resources that the private sector might
otherwise invest. Government spending financed by borrowing absorbs private savings unless the private sector acts to offset the savings reduction. An understanding of the causes and consequences of
the trade deficits of the 1980s begins with their definitions.
MEASURES AND MEANINGS OF EXTERNAL BALANCES

Trade and current account balances convey information about exports and imports, net international borrowing, and net international
flows of capital. In order to disentangle this information, it is helpful
to examine the meanings of the external balances on which the
United States collects data.
When the United States imports more goods than it exports, it experiences a merchandise trade deficit. Because the balance on merchandise trade is restricted to trade in physical goods, it is too
narrow a measure of the many things traded internationally to be a
reliable signal about U.S. trade. Adding U.S. exports and imports of
services (including investment income) produces net exports of
goods and services. Because the United States tended in the past to
export more services than it imported, the recent deficit on net exports tended to be somewhat smaller than that of merchandise trade.
The net service balance has declined recently, so that the difference
between the merchandise trade and net export balances is smaller
than in the past.
The balance on net exports as measured in the national income
and product accounts (NIPA) is conceptually similar to but slightly
narrower than the balance on goods and services as measured in the
international transactions of the Bureau of Economic Analysis (BEA).
The balance on net exports excludes interest payments and receipts
on government liabilities; but these investment earnings are included
in BEA's balance on goods and services. (The NIPA and BEA balances also differ in the way they account for certain other items such
as gold, capital gains and losses, and data revisions.) A still broader
measure of the external trade balance is BEA's current account,
which is derived by adding net international remittances, pensions,
and other unilateral transfers to the balance on goods and services.
Because the United States tends to transfer more abroad than foreigners transfer to the United States, the current account deficit exceeds the deficit on net exports. The balance on the current account
is the most inclusive and reliable measure of the value of the net flow
of U.S. sales to foreigners.
By measuring the balance between exports and imports of goods
and services in constant 1982 dollars, it is possible to determine real




124

net exports. This measure is the one most closely associated with real
GNP, which reflects real living standards. Because differences between net exports in current and constant dollars reflect changes in
the relative price of imports and exports, however, only the relative
movements of the balance on real net exports are meaningful. For
example, in 1972 the difference between exports and imports in current dollars was positive, implying a surplus on real net exports—that
is, net exports in 1972 dollars. Between 1972 and 1982 the price of
exports went up by a factor of 2.4, while the price of imports more
than tripled, owing primarily to the two oil price shocks in the 1970s.
Reevaluating 1972 exports and imports in 1982 dollars increases the
value of imports by enough more than the value of exports to make
1972 a year of a deficit in real net exports. Conversely, revaluing
1982 net exports in 1972 dollars raises it to an even larger surplus.
Given a base year whose prices are chosen to remain constant, measurement can be made of relative increases and decreases of the balance on real net exports, but not of whether it is in deficit or surplus.
Chart 3-3 depicts the nominal current account as well as net exports in current and constant 1982 dollars since 1963. All three
measures of the external balance exhibit broadly similar patterns.
Until the second quarter of 1983 all three measures stayed within the
ranges exhibited in the previous postwar history. Beginning in 1983,
however, all three accounts deteriorated substantially. The deficit on
real net exports reached its peak at $151.8 billion in the third quarter
of 1986. Since then it has declined from 4.1 percent of real GNP to
2.3 percent. The deficit on net exports in current dollars reached its
peak in the last quarter of 1987, and has since turned around. Since
1983 the deficit on net exports has averaged 1.8 percent of GNP,
greater than any deficit experience in this century, but about the
same as the average ratio of the post-Civil War deficit on goods and
services to output in the years 1869-75.
A deficit in net exports implies several things. First, it implies that
total spending by residents of the United States—government and
private investment and consumption—is greater than the value of
GNP or domestic income. When domestic purchases exceed domestic
production, the country imports the excess and runs a deficit on
goods and services. Alternatively, it implies that national saving is
less than national investment. This result is a direct consequence of
national income accounting relationships. Apart from some relatively
minor items, the excess of national investment over national savings
equals the excess of domestic demand over GNP, and thus the deficit
on net exports.
Finally, a deficit in net exports implies that, on net, foreigners are
accumulating claims on or reducing liabilities to the United States,




125

Chart 3-3

Net Exports and the Current Account Balance

Billions of dollars (seasonally adjusted annual rates)
801

iMltntinlMitinlinliiihiilMthnliiilniliiiliiiliiiliiiliiiliiihiiliiiliiiliiiliiiliiiiinliii

1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987
1
1n 1982 dollars.
Source: Department of Commerce.

either in the form of direct investment or acquisition of financial
assets (including those of the government). A current account deficit
must equal in magnitude the capital account surplus, because in
order to purchase current goods and services in excess of those sold,
assets must be sold in excess of those purchased. Except for a statistical discrepancy, the current account deficit equals this net capital
inflow, which in turn is conceptually similar to net foreign saving.
Under a strictly flexible exchange-rate regime, the exchange rate
adjusts until the net payments offered by market participants balance
exactly, so that capital account transactions exactly offset those of the
current account. If the monetary authorities engage in capital account
transactions, as they might under fixed exchange rates or a managed
float, a current account deficit must equal in magnitude the surplus
on the total capital account, including the value of any net official
sales of international reserves.




126

THE CURRENT ACCOUNT BALANCE: RECENT HISTORICAL EXPERIENCES

Many factors can lead to net international borrowing, and thus to
deficits in the current account. In some cases a current account deficit signals an inherent problem in economic policies or in underlying
economic conditions. In other cases a current account deficit reflects
a healthy, growing economy where citizens are borrowing in order to
invest and consume in anticipation of a robust future. Three recent
experiences of current account deficits are instructive on these differences: the first occurred between early 1971 and the end of 1972, the
second between mid-1976 and mid-1980, and the last in the period
since the third quarter of 1982.
The first of these incidents had its seeds in the late 1960s, as the
U.S. dollar creation in excess of amounts consistent with the maintenance of the Bretton Woods Agreement led to dollar outflows that
exceeded the amount of dollars willingly held by foreigners and domestic residents. The current account of the United States declined
accordingly, leading to the balance of payments deficits and the accumulation of the excess supply of dollars by foreign central banks
noted in the previous section. Current account deficits persisted until
early 1973, when the dollar was finally allowed to float freely. As can
be seen in Chart 3-1, the value of the dollar fell almost without exception throughout the period both in real and nominal terms, while
both the balance on real net exports and the current account first declined and then, beginning in 1972, began to increase. When the underlying source of a dollar depreciation is excessive money creation,
the current account and the value of the dollar tend to deteriorate
together.
The circumstances characterizing the latter 1970s appear to be
similar. The rapid U.S. monetary expansion intended to combat the
high unemployment resulting from the recession of 1974-75 led simultaneously to higher inflation, a depreciating dollar, and a declining current account. By the middle of 1975 real imports began to
soar, and by the end of the next year the current account became
negative. The deficits on the current account and real net exports
began to shrink in 1978. The inflation-fighting stance adopted by the
U.S. monetary authorities in late 1979 helped to halt the deteriorating dollar and the rapid capital outflows of the period. Real exports
picked up and real imports slowed. By mid-1980 the current account
was in surplus and real net exports were rising briskly. In 1982, however, the current account again fell into deficit, followed shortly by a
decline in real net exports.
Unlike the earlier experiences with current account deficits, both of
which were associated with excessive money growth relative to
output, the experience of the 1980s has been one of incentive-based




127

fiscal policy and an inflation-fighting stance. The recent decline in
the current account actually began in 1980, when the prospect of reduced inflation under the new regime of monetary restraint raised
real after-tax rates of return in the United States relative to those
abroad. As foreigners began to increase their willingness to hold U.S.
assets, the U.S. current account fell. This trend was reinforced by the
effects of the Economic Recovery Tax Act of 1981, which reduced
corporate taxes, further increasing after-tax real returns in the United
States relative to abroad. The dramatic U.S. expansion beginning in
1982 came at a time when many U.S. trading partners were still in
the throes of slow growth or recession. The growth of total public
and private U.S. demand for consumption and investment goods,
based on the strength of the expansion, outstripped the growth of
current U.S. output. This increase in relative U.S. demand resulted in
growing current account deficits accompanied by voluntary private
capital inflows. The rising real value of the dollar amounted to a relative price effect that further reinforced the income effect behind the
increased relative demand.
In the past few years, foreign nations have begun to acknowledge
and emulate the success of U.S. policies, with the result that, since
mid-1987, the external balances have begun to turn around. Foreign
tax reductions and monetary restraint have reduced foreign inflations
and been accompanied by increases in foreign GNP growth that have
in turn increased relative foreign demand. The prospect of reduced
trade and structural barriers associated with the 1992 plan for a
single European market and the extension of the European Community to include Spain and Portugal have resulted in sharp increases in
investment in Europe. Again, the decline of the dollar, which partly
reflected these improved foreign conditions, has helped reinforce the
improvement in the U.S. current account.
A frequently made claim is that recent U.S. current account deficits
are financing a U.S. spending spree that will end in the painful curtailment of future consumption in order to service the debt. This
result is possible but not inevitable. The outcome depends on how
the resources are used. Borrowed resources enable the United States
to increase investment, raising productivity and future output, thus
providing the resources to service the debt out of higher future incomes. On the other hand, relatively low U.S. savings and investment
rates suggest that much of the inflow of foreign capital is instead
being diverted to current consumption. As Chapter 1 showed, however, measured U.S. investment rates are understated relative to
those of the rest of the world because education, research and development, and consumer durables, on which U.S. expenditure is relatively high, are excluded from the usual measures of investment. The




128

encouragement of U.S. investment through tax laws that raise expected after-tax rates of return and make uniform the tax rates on alternative kinds of capital has been a goal and an achievement of this
Administration. Raising corporate or marginal income tax rates will
discourage further investment and reduce future output, making the
servicing of the foreign debt more difficult.
During the 1980s the large U.S. external deficits occurred along
with large U.S. Government budget deficits. While the concurrence
of these deficits has often been noted, a precise statistical relationship between the two is not expected on theoretical grounds and has
not been found. In principle, if the government simply taxes less
while borrowing more in order to finance a given amount of government expenditure, the private sector may simultaneously save the difference in anticipation of the higher future taxes necessary to repay
the debt, including interest, that the government has incurred. Net
borrowing by the United States under these circumstances would not
increase if the only factor were a government budget deficit. In practice, government expenditure was not held fixed during the early
1980s; and various distorting tax laws may have discouraged sufficient private saving to offset the effects of the government borrowing. Higher economic growth and the reduced government spending
consistent with the Gramm-Rudman-Hollings deficit reduction plan
will contribute to higher U.S. saving, and hence to further reductions
in the current account deficit, without a tax increase.
THE CHANGING U.S. NET ASSET POSITION
The negative current accounts of the 1980s have meant annual increases in the net claims foreigners held on the United States. Even
though total U.S. holdings of foreign assets have continued to increase on average during the 1980s, foreign ownership of U.S. assets
has increased at an even faster pace. As a consequence, the postwar
role of the United States as net lender to and investor in the rest of
the world diminished during the 1980s. According to official estimates, since 1985 the United States has acquired a position of net
indebtedness toward the rest of the world, a position last assumed by
the United States in World War I. At the end of 1987, total U.S.
assets abroad were recorded at $1.17 trillion, $368 billion less than
recorded foreign assets in the United States. Although these official
estimates may substantially underestimate the true U.S. net asset position, the trend implies a change in the traditional role of the United
States as a net lender.
Although measured U.S. net external indebtedness in 1987 represented the largest net nominal amount owed by any single country, it




129

amounted to only 8.1 percent of GNP. This amount is small compared with U.S. net indebtedness-to-GNP ratios in the latter half of
the 19th century. Following the Civil War and again following the
period of heavy investment in railroads during the 1880s and 1890s,
this ratio reached a full quarter of average annual GNP. Based on estimates produced by the IMF, Canada's net external debt (excluding
gold holdings) was 34 percent or more of Canadian GDP throughout
the 1980s. In 1987 the service on the gross U.S. debt abroad
amounted to less than 2 percent of GNP and was less than U.S. earnings on assets abroad. Even a further increase in net U.S. debt need
not be a problem for the United States. By continuing to increase
U.S. output, the productive use of resources will keep the U.S. net
debt and its servicing from growing too fast relative to GNP. Nevertheless, questions about the causes and consequences of the debt
merit examination. It is helpful to begin with definitions and facts.
At the end of 1970 total U.S. assets abroad stood at $165 billion,
54.7 percent higher than foreign asset holdings here. Total assets include direct investment, other private assets (such as bonds, Treasury
bills, bank deposits, and stock), and official assets such as international reserves. These assets had largely been accumulated during
the postwar period, as the United States contributed heavily to the
rebuilding of Europe and Japan through loans and direct investment.
On average, U.S. assets abroad grew somewhat more slowly than foreign assets in the United States during the 1970s. From the end of
1979 to the end of 1987, however, the average annual rate of growth
of foreign assets in the United States increased from the 16.2 percent
per year of the 1970s to 17.7 percent per year, while the average
annual rate of growth of U.S. assets abroad fell from 13.3 to 10.9
percent.
Chart 3-4 shows the total U.S. net asset position abroad and two
of its components as a percentage of U.S. wealth net of depreciation.
U.S. net wealth consists of the value of government and private tangible assets (including land, structures, inventories, and consumer
durables), and net U.S. claims on foreigners (including both net financial assets and net direct investment abroad). Because the net
U.S. asset position abroad is available only on a primarily historicalcost basis—that is, excluding changes in asset values attributable to
capital gains or losses for many of the assets—net wealth is also computed on an historical-cost basis. The total net U.S. asset position
abroad was 1.8 percent of net wealth in 1970. Although U.S. holdings of foreign assets continued to increase on average even relative
to U.S. net wealth, the percentage of net wealth represented by foreign
asset holdings rose more rapidly. Consequently, by the end of 1987 net
foreign assets in the United States amounted to some 3.1 percent of
U.S. wealth.




130

Chart 3-4

U.S. Net Asset Position Abroad as Percent of Net Wealth

Percent of net wealth at historical cost
Net U.S. Direct Investment Abroad

Net Total U.S. Asset Position Abroad1

\\
\\

Net Other U.S. Private Assets Abroad2

-2

\
\
\

-4
1970

1972

1974

. 1976

1978

1980

1982

1984

1986

Direct investment, other private assets, and official assets.
Nondirect investment.

2

Sources: Department of Commerce and Board of Governors of the Federal Reserve System.

Several factors caused the reversal of the net asset position of the
United States. By the mid-1950s Europe and Japan had recuperated
from the war's devastation, reducing the net outflow of capital from
the United States. The incentives to use U.S. dollars to finance the
purchase of foreign assets created by the arrangements of Bretton
Woods were removed with its breakdown in the early 1970s. Increased U.S. private and official lending to developing nations partly
offset the contraction in the net U.S. capital outflow to other industrial countries. By the early 1980s, however, debt repayment problems on the part of those developing nations reduced their ability to
borrow.
At about the same time U.S. tax laws in the early 1980s made the
country a relatively desirable and safe investment for its trading partners, simultaneously attracting private foreign capital into the United
States and reducing the relative desirability to Americans of foreign
assets. Additionally, beginning in 1982 the robustness of the eco-




131

nomic expansion in the United States led to an increased U.S.
demand for goods and durables for consumption and investment
purposes. The result of these forces was that the capital account deficits in the 1960s gave way to capital account surpluses in the 1980s,
with a concomitant annual decline in the net lending position of the
United States.
As can be seen in Chart 3-4, U.S. direct investment abroad continues to exceed foreign direct investment in the United States. In the
early 1980s, however, U.S. direct investment abroad declined slightly,
while foreign direct investment in the United States continued to increase rapidly, resulting in a decline in the U.S. net investment
abroad to 0.4 percent of national net wealth in 1987. The net capital
inflow was responding to the rise in the relative U.S. after-tax real
rate of return experienced in the early 1980s.
The most variable component of the U.S. net asset position has
been that of other private assets, which include financial instruments
but exclude direct investment. During the 1980s private foreign acquisition of U.S. financial assets, particularly U.S. Treasury bills, has
outpaced even the fairly rapid increase in private American holdings
of foreign nondirect investment. A slowdown in private U.S. asset acquisition abroad between 1982 and 1984 further contributed to the
decline in the net position. These private asset flows again reflect the
increase in expected U.S. after-tax rates of return, as well as the relatively low risk associated with U.S. Treasury assets, including the reduced risk of U.S. inflation during the 1980s.
The figures presented in Chart 3-4 and above substantially underestimate the U.S. asset position relative to the foreign position. Because direct investment is valued at historical cost, the increased
market value of older assets is not taken into account. American
assets abroad are of a relatively older average vintage than foreign
assets here, resulting in an estimate that undervalues the net U.S.
asset position. Moreover, the current definition of the U.S. asset position counts official holdings of gold as claims on foreigners, but
values the gold at the official price of $42.22 per troy ounce. Revaluing official gold holdings of the United States in 1987 at $400 per
troy ounce reduces the apparent net debtor position of the United
States by one-fourth. On the other hand, allowance for the reduced
market value of U.S. holdings of the debts of troubled developing
countries such as Brazil, Mexico, and Argentina tends to increase the
U.S. net debtor position. In addition, if the bulk of the errors and
omissions item in the U.S. capital account is assumed to reflect unrecorded capital inflows, then U.S. liabilities to foreigners are also understated. One recent estimate correcting for some of these measure-




132

ment deficiencies suggested that the United States continued to be a
net creditor in 1987 by about $50 billion.
An alternative indicator of the U.S. asset position abroad can be
inferred from international earnings flows. Although quarterly earnings are not strictly related to the market value of the investments,
and are affected by tax laws governing assessments on distributions,
earnings may still provide a gauge of the market's valuation of the
U.S. net asset position abroad. Chart 3-5 shows seasonally adjusted
quarterly public and private earnings by the United States on foreign
assets and by foreigners on assets in the United States during the
1980s. These series exhibit a good deal of quarter-to-quarter variation despite seasonal adjustment, reflecting changes in short-term interest rates, the exchange rates at which foreign earnings are repatriated into the United States, and taxes. Although the gap has been
closing for several years, quarterly U.S. receipts exceeded U.S. payments on assets until the second quarter of 1988. In 1987, U.S. receipts of income on assets abroad exceeded U.S. payments of income
on foreign assets in the United States by $20.4 billion. By this measure the net asset position of the United States remained positive at
least through the end of 1987. Such an inference does not take account of the differences in interest rates. American assets abroad
tend to earn higher rates of return than foreign assets in the United
States. This difference may reflect the greater relative riskiness of
foreign assets, or it may reflect the higher realized returns that come
with long-established capital investments. On the other hand, it may
be an artifact attributable solely to comparing earnings with the artificially low historical-cost value of the assets.
Regardless of whether the net U.S. asset position is still positive,
the trend has certainly been for it to decline. The year 1982 marks a
quickening in the pace at which foreign net lending to the United
States, relative to wealth, increased. Since that year foreign non-official lending and direct investment to the United States have increased by 151 percent, while U.S. private lending and direct investment abroad increased by 44 percent. The largest percentage increases in foreign holdings of U.S. assets during the period were in
Treasury securities and corporate and other bonds. During this
period, after-tax real returns in the United States had increased relative to those abroad, attracting the large private capital inflow.
Foreign holdings of U.S. Government securities have increased
substantially during the 1980s. Interest payments made to foreigners
by the U.S. Government are currently 2.6 percent of government expenditures, and amount to 18.7 percent of net U.S. Government interest payments. The inflow of foreign funds for which these interest
payments serve as compensation is beneficial in several ways. It helps




133

Chart 3-5

Asset Earnings Flows

Billions of dollars (seasonally adjusted)
35

30

25

20

15
Payments by U.S. to Foreigners

10

i.. i . . . i . . . i... i... i , , , i... i... i...T
1980

1981

1982

1983

1984

1985

1986

1987

1988

Source: Department of Commerce.

to keep U.S. interest rates close to world levels. It frees up the capital
of U.S. citizens for other purposes. To the extent that the capital has
been invested productively rather than consumed, the increase in expected future income attributable to that investment can be expected
to compensate for the interest payments due to the foreigners who
helped finance it.
Although the majority of the increase in net foreign claims on the
United States has been in financial assets, foreign direct investment
in the United States has also increased in the 1980s. Chart 3-6
breaks down the foreign direct investment position in the United
States since 1982 by nationality. Direct investment by the United
Kingdom represents the largest component of foreign ownership in
the United States, averaging 25 percent of total foreign direct investment since 1982. The Netherlands, at 20 percent, is the next largest
single investor. Other European direct investment averaged 22 percent. Japanese direct investment constituted 11 percent, growing
from 8 percent in 1982 to 13 percent in 1987. Canadian and other
direct investment make up the remainder.




134

Free international trade in assets, including direct investment, benefits both buyers and sellers. At the same time, there is some concern
about the impact of foreign direct investment on national security.
The Exon-Florio provision of the Omnibus Trade and Competitiveness Act of 1988 empowers the President to investigate and block
foreign direct investment for reasons of national security. This provision is a step toward meeting those concerns, while allowing the
United States to maintain an open investment policy.
Chart 3-6

Foreign Direct Investment Position !in the United States

Billions of dollars

\~

United Kingdom
Netherlands
lillllllHIl Other Europe
Japan
V/////A Canada
Other

1982

1983

1985

1984

1986

1987

Source: Department of Commerce.

As a net debtor to the rest of the world, the United States has certain obligations. In order to service the debt in the future, the Nation
must make appropriate use of the resources today. By continuing to
use the loan proceeds to engage in productive investment, the
United States can service the future debt without reducing consumption growth.
Because the debt of the United States is denominated in U.S. dollars, inflation in the United States would have the short-run effect of
reducing the real value to foreigners of their long-term debt instruments. Such an inflation would reduce the role of the dollar as a
principal world currency if foreigners became hesitant to denominate
debt and goods contracts in dollars. Since 1982, when the current increase in net lending to the United States started, U.S. inflation has -




135

remained under control. Nevertheless, some increase in the international roles of other currencies has occurred.
Table 3-2 compares the roles of various currencies in the denomination of international bond issues. Although the role of the U.S.
dollar as an international currency is no longer the formal one assigned to it at Bretton Woods, widespread use of the dollar has continued under flexible exchange rates. Since 1983, however, the share
of the U.S. dollar in the denomination of internationally traded financial assets has decreased by 44.3 percent, while the shares of the Japanese yen and other currencies have increased substantially. Some of
those increases parallel the greater share of lending by nations whose
increased growth and financial liberalizations have enabled their participation in world credit markets to soar. As nations such as Japan
have opened their capital markets, in part at the urging of the current Administration, their currencies have come to play a larger role
in the denomination of international loans and goods payments.
Some of the increase may be a response to international market concerns about the U.S. response to the temptation to incur an inflation,
thus reducing the real value of the debt service on outstanding debt.
The United States welcomes the increased participation of other nations in the world's credit markets. Open international credit markets
benefit the citizens of all countries. At the same time, the United
States continues to offer credible assurances of its ability and intention fully to repay its real debt through monetary restraint and domestic investment incentives. By reducing inflation until price stability is restored, and continuing its policies of promoting domestic
growth, the United States will ensure the continued use of the dollar
throughout the world as a means of payment, a unit of account, and
a store of value.
TABLE 3-2.—Currency Denomination of International Bond Issues, 1983-88
[Percent distribution]
United
States

Year

West
Germany

Japan

Other

1983

78.3

0.5

8.1

132

1984

80.0

1.5

53

133
172

70.9

48

70

1986

629

99

91

181

1987

41.3

16.1

107

319

1988- First 3 quarters

43.6

90

129

346

1985 .

...

...

...

Note.—Data are shares of total new issues of international debt. Shares may not sum to 100 percent due to rounding.
Source: Organization for Economic Cooperation and Development.




136

THE DEBT OF DEVELOPING NATIONS
Compared with the manageable debts of developed nations, the
external debts of developing nations reached unprecedented levels
during the late 1970s and early 1980s. Between 1980 and 1982 the
average external debt of developing countries reporting their loans
to the World Bank grew from 28 percent to 36 percent of GDP. Although the pace of new lending has diminished since 1982, stagnating real GDP and investment in many of those countries further increased average external debt to 48 percent of GDP by 1986.
Although no generally accepted economic criteria exist for the
maximum sustainable level of debt a country can bear, the experience with developing nations during the late 1970s and early 1980s
has been alarming to their creditors. Only the regions of South and
East Asia (including the Pacific) continue to have external debt-toGDP ratios within the range experienced recently by developed countries. The ratios for the African nations south of the Sahara soared to
an average of 70 percent in 1986. The average debt of the Latin
American and Caribbean countries has hovered around 60 percent of
GDP since 1983, with some individual countries reaching levels
higher than 100 percent. Each increase in debt requires a permanent
increase in the net exports of the indebted country in order to service that higher debt. Nevertheless, during the 1980s the exports of
many of these countries as well as their investment have slowed, although the exports of some highly indebted countries have improved
since 1986.
Beginning with Mexico in 1982, many indebted developing nations
have interrupted servicing portions of their debt, in some cases unilaterally declaring moratoriums on both principal and interest payments. Official lenders such as the members of the Paris Club and
various consortia of commercial banks have increasingly devoted resources to renegotiating and rescheduling existing private and official
bilateral debts. International institutions such as the IMF and the
World Bank have played a leading role in assisting these renegotiations. Almost one-third of the estimated $1.2 trillion worth of total
debt owed by developing countries in 1987 was subject to renegotiation between January 1980 and September 1987. Fifty nations, representing one-half of the developing countries reporting their loans
to the World Bank, were involved in these renegotiations. Proposals
for debt relief continue to be presented, despite negotiated reductions in debt servicing, new loans and investments, and somewhat improved economic conditions in many of these countries.
The causes of these debt problems, the implications for the United
States and other lenders, and the solutions vary by debtor country.




137

Nevertheless, some common features and lessons can be observed,
beginning with the meaning of the debt figures, then the causes, and
finally the proposed solutions.
The debt totals of developing nations are not directly comparable
with the net international asset positions of developed countries. The
debt totals of developing nations exclude net foreign direct investment, which in some developing countries has been substantial. On
the other hand, the debt figures also do not include the assets of the
developing countries held abroad. In many cases, capital and exchange controls imposed by these countries limit the ability of their
citizens to buy foreign assets, suggesting that the net external liability
position is well approximated by gross external debt. However, capital controls do not prevent and may encourage capital flight. Although by definition flight capital is not an available asset of the
country (for example, its earnings cannot be reached for tax purposes by the country of origin), it does have the potential for repatriation should economic conditions at home improve, because citizens
of the country control it. Recent estimates of the flight capital of
seven highly indebted countries suggest that it may represent onethird of their total external debt, and may be substantially higher for
some individual countries. Nevertheless, even though the external
debt figures for developing countries are not perfectly comparable
with the net external debt statistics available for developed nations,
they are likely to be broadly suggestive of their current position.
The debt of developing nations can be broken into short-term,
long-term unguaranteed, and long-term guaranteed debt. Based on
IMF estimates, long-term debt guaranteed by the debtor countries
accounted for 75 percent of total developing-country debt in 1987.
Private creditors held about one-half of that debt. International agencies and governments held the remainder of the long-term publicly
guaranteed debt. International agencies customarily retain seniority
over private creditors in the servicing of debt. The resources that
contributing countries provide to international agencies have been
increased as the agencies increased their responsibilities in addressing
the debt problems. The United States recently supported a $74.8
billion general capital increase for the World Bank to enable it to
support reforms and strengthen its role.
Although many highly indebted countries continue to be good
credit risks, maintaining scheduled principal and interest payments
and occasionally even prepaying, the 1980s have witnessed a large
number of reschedulings. Many debtor nations have also fallen into
arrears on commercial bank loans. Renegotiations have often been
preceded by brief moratoriums on the payment of principal and, in
the past few years, interest on the debts of some countries.




138

Although the causes for these troubling events vary by country,
some themes stand out. First, the low or negative real interest rates
of the 1970s increased borrowing, while the high real interest rates
of the early 1980s suddenly raised the cost of servicing the outstanding debt. Some of the effect of the rise in cost was mitigated by the
portion of the debt that had been negotiated at the lower fixed rates
of the earlier period, notably World Bank loans. However, most of
the loans were at premiums over the floating London Interbank Offered Rate (LIBOR), the benchmark on many short-term interbank
loans. While the average interest rate on new commitments of official
loans went from 5.2 percent in 1975 to 7.5 percent in 1982, the average market interest rate on new private commitments went from 8.6
percent in 1975 to 12.3 percent. Because much of the debt was
denominated in U.S. dollars, unexpectedly high levels of real debt
service resulted from the high real interest rates and strong dollar
that accompanied the reduction in U.S. inflation during the early
1980s and the higher expected after-tax real rates of return brought
on by the Economic Recovery Tax Act of 1981.
Second, the effects of the higher real interest rates of the early
1980s were exacerbated by the collapse of the prices of many commodities such as copper and oil, on which particular developing
countries had relied for export revenue. In some cases recoveries in
these prices have contributed to improvements in the solvency of
these countries—notably, copper prices for Chile. In other cases,
such as oil, prices have fallen even further. As long as some countries
depend heavily on a small number of commodities for their exports,
such high variance in earnings must be anticipated.
A third common cause of debt problems has been the use to which
the loan proceeds were put in some countries. In some cases, poor
investment projects simply failed to pay off. Some of these projects
such as the building of minor roads had low expected payoffs at the
time the investment was undertaken. Others were initially promising
projects that ultimately never yielded the expected return. In many
countries consumption rather than investment was the destination of
the funds. This outcome in itself need not signal trouble, especially
for a nation with promising prospects. When investment is insufficient to cover the loan repayments, however, consumption eats into
wealth. The tendency of troubled debtors to reduce investment more
than consumption as a response to maintaining repayment schedules
has been an additional complication of the 1980s. This response
compounds the problem, making future repayments increasingly difficult. In some cases, too, outright fraud and corruption may have
waylaid funds meant for productive purposes.




139

Finally, a fourth cause of the debt problem was the further deterioration of economic conditions within these countries. Barriers to
trade and to financial transactions, price controls and fixed exchange
rates coupled with high domestic inflation rates, high marginal tax
rates, and the nationalization of private industry handicapped these
countries as they entered the difficult passage of the 1980s. In many
instances, these distorting disincentives were increased rather than
reduced as a response to the economic downturns. Capital flight
often resulted. The very capital needed by these countries to invest
in more promising industries, rebuild, and repay the debts moved
quickly out of the countries as the governments—through inept policies and threatened confiscation—reduced the incentives to keep
wealth at home. Policies that entice this capital to be repatriated can
help the countries achieve domestic economic recovery as well as
return to timely debt servicing.
Despite the difficulties, some countries have achieved a degree of
success in coping with their problems. South Korea, Mexico, and
Chile have all improved their debt standings. For Chile, the improvement accompanied sweeping deregulation of domestic markets and a
consistent inflation-fighting stance, leading to rapid and sustainable
economic growth and renewed domestic investment. Based on its
successful performance, Chile's creditors unanimously agreed to a
partial waiver of the prohibition against buying back its outstanding
debt, permitting it to use copper earnings in excess of a threshold
value to repurchase and thus extinguish some of its debt. On the
other hand, countries that tried to raise tax revenue via inflation have
generally fared among the worst, creating the greatest amounts of
capital flight, incurring repeated currency devaluations, and in extreme cases, inducing their own recessions in attempts to cure their
monetary excesses.
Progress in the form of increased gross domestic product and increased export earnings has been initiated on average in the 15
major debtor countries targeted by the Baker Initiative of 1985, of
which Chile is one example. The Baker plan strengthened and extended many of the existing proposals for dealing with the debt
problems of the developing nations. It emphasized four essential and
mutually reinforcing elements: first, the importance of achieving sustained economic growth; second, the need for market-oriented reforms in order to achieve such growth; third, new debt and equity
financing as well as the return of flight capital to help support such
reforms; and fourth, a case-by-case approach to address the individual needs of each country.
A key feature of the plan was to highlight the need for reform
within the debtor countries, particularly reform in areas that will con-




140

tribute to renewed investment and output growth so that the net
exports of these countries can be sufficient to service their debt obligations. Trade and financial market liberalization, privatization, deregulation, increased reliance on market prices including exchange
rates, and fiscal balance can help these countries recuperate and
return as reliable participants in world credit markets. For countries
at the lowest levels of income that undertake appropriate economic
reforms, initiatives have been put into place to provide substantially
increased concessional financing.
The Baker plan continued the emphasis on the need for voluntary
negotiations that leave room for individual responses to the wide variety of problems arising in a particular developing country. There
can be no grand solution, because each country has its own constraints and opportunities. Each creditor, and each borrowing nation,
must be free to negotiate acceptable terms. This approach encourages a variety of debt conversion techniques and innovative responses to the evolving debt climate.
While the long-run solution to the debt problem must be directed
at regenerating investment opportunity within these countries, shortrun solutions must include either reschedulings or other types of negotiated adjustment. Reschedulings basically extend the maturity of
the debt. The advantage is that the annual principal and interest payments are reduced, helping a country through a temporary downturn
without having to reduce domestic spending further. The cost is that
the debt increases and additional interest must be paid in the future
on the portion of the principal that is rolled over. Nevertheless, for
many countries this step has been useful,
Some types of negotiated adjustment reduce the creditor's exposure without affecting the obligations of the borrower. The lending
banks are currently able to sell their debt in a secondary market.
Doing so imposes severe costs on the bank. Typically, the discount in
the secondary market is substantial. Following the sale, the bank
must adjust its balance sheet to take account of any previously unrecorded difference between market and book value. Another alternative is swapping the debt for equity equal in value to some measure
of the market value. Debt-equity swaps can sometimes benefit all parties. Because the debtor nation stands to gain by reducing its interest
payments, the value of the equity offered often exceeds the secondary market price. Part of the debt and the need to service it is wiped
out for the debtor country, although it is replaced by dividend payments to be made.
Under a debt-equity swap, capital is left in the debtor country and
a working relationship remains between the investor and the nation.
Direct foreign investment contributes to improved foreign expertise




141

and increases competition and market efficiency. Some risks are entailed for the creditors. For example, the creditor must now learn
about business conditions and laws in these foreign countries, a risk
that is fairly substantial and is outside the usual province of banking
expertise. In order to entice banks and other lenders into such
swaps, a country must offer assurances minimizing the risks of nationalization, of denial of the right to repatriate the dividends, or of
imposing exchange controls. Perhaps as a consequence of these risks,
most of the debt-equity swaps have been in the secondary markets
involving private investors rather than banks' involvement for their
own portfolios. In some cases, country risks associated with direct investments qualify for U.S. Government guarantees under the Overseas Private Investment Corporation or the investments can be insured by the private sector. Correct assessment of these risks for the
purpose of providing insurance is difficult but essential if the risks
are to be allocated in an appropriate and unsubsidized manner.
Many countries face internal opposition to debt-equity swaps based
partly on nationalistic fears about foreign control of capital, and subject the swaps to severe restrictions. There is also concern that the
capital inflow at the time of the exchange will raise money growth
and inflation, although this problem can be prevented by appropriate
central bank action. Despite these objections, countries have found
debt-equity swaps helpful. Debt-equity swaps have accounted for $10
billion to $12 billion in debt reduction, or almost one-half of the
total debt reduction accomplished since 1982, and have been carried
out successfully in Bolivia, Brazil, Chile, Mexico, the Philippines, and
other countries.
In some cases debt reduction has been accomplished through debt
buybacks where either the private or public sector repurchases the
outstanding debt at a discount. This method has been successful in
Brazil, Bolivia, Chile, and Mexico. A promising innovation is the opportunity to swap debt for bonds, an approach tried recently in
Mexico. Perhaps because the bonds were not sufficiently more appealing in marketability, interest security, or price to the banks than
the debt, only a small fraction of the outstanding debt was exchanged. Nevertheless, experimentation with swaps and buybacks
holds the promise of finding arrangements attractive to both borrowers and lenders.
Grand schemes that attempt to encompass all of the individual
debtor-country problems with a single proposed solution should be
rejected. Circumstances differ across countries. Furthermore, proposals offering to transfer part of the debt to taxpayer-supported facilities may discourage countries from making the painful adjustments
required to bring greater efficiency to their economies.




142

A fine line separates providing the proper environment for successfully resolving the debt problems and offering assistance that
may ultimately compound the problem. Attention must be paid to
the incentives and disincentives that any particular plan creates. The
offer of official guarantees or an official program offering noncountry-specific relief creates free rider and moral hazard problems,
if some countries are tempted to declare insolvency in order to qualify for the aid. Confronted with an official program to provide relief,
a borrowing country has an incentive to act in ways that reduce the
market value of its debt in order to qualify for aid.
As long as the choice of whether and how to renegotiate the debt
remains privately and individually determined, the market's traditional threat to limit further lending to recalcitrant debtors reduces these
disincentives. Many banks have now recognized that the market value
of the debt is less than its face value. Commercial banks are increasingly moving to reduce their developing-country exposure through a
variety of techniques, including decisions to swap debt for equity,
debtor bonds, or other local claims at market or negotiated prices.
There have been several proposals to increase the incentives for
debtors and creditors to negotiate such voluntary transactions. There
is a danger, however, that many of these proposals would involve
either additional official financing or a shift in risk from the private
to the public sector. To avoid this result, debtors and creditors
should be encouraged to pursue voluntary, market-based solutions to
debt problems. To support these efforts, debtor countries must establish stable economic conditions compatible with the return of
flight capital and sustainable growth. By privatizing state industries
and liberalizing restrictions on domestic markets and international
trade, as envisioned in the Baker Initiative, these countries can create
an economic environment that is conducive to long-term growth and
solvency.
International financial institutions may risk increasing their exposure in order to sustain full service of outstanding debt. Such increases of exposure could pose fundamental problems for the longterm viability of these institutions. It is important, therefore, to
review the role of the IMF and World Bank in the debt strategy and
their relationship to commercial bank financing packages.
International agencies and lending governments have played a constructive role in preventing the debt problem from degenerating into
a crisis. They have offered a route for continued debt renegotiation
and have encouraged economic reform. They have often sought to
ensure adequate financing that, combined with commercial bank and
Paris Club reschedulings, would meet debtors* financing needs, while
leaving specific elements of financing packages and any debt-reduc-




143

tion techniques to be negotiated between the debtor nations and
commercial banks. International agencies should continue to encourage reforms that increase market incentives and reduce government
subsidies and deficits.
The chief aim of the United States and international agencies,
should be to continue maximizing debtor nations' prospects for lasting economic reforms and sustainable growth. This objective is advanced by conditionally which ties new lending to programs that
foster productive investment, growth, and market freedom. Under
current policy, there is room for debtors and creditors to reach
market-oriented agreements to reduce the value of the outstanding
debt. If these negotiations proceed more actively, international agencies could continue the policy of making new loans conditional on reforms, leaving negotiations between debtors and private creditors to
determine changes in the value of outstanding debt and the associated debt service. More resources could then be available to encourage
domestic reform and increase the share of borrowing from international organizations used for productive investment; this change
would heighten debtors' incentives to achieve economic reforms.
Voluntary agreements leading to debt reduction would, if successful,
lower the amount of debt service that the debtor economies would
be required to support.
The demise of the Bretton Woods system and the rapid liberalization and accessibility of international financial markets have altered
the roles of the IMF and the World Bank in a more general sense.
The original function of the IMF was to maintain a system of fixed
exchange rates by providing short-term loans of international reserves to ease temporary payments imbalances. This function was diminished as the major industrial countries adopted flexible exchange
rates and were able to meet their financing needs from private markets. Similarly, the World Bank's original commission to provide
credit to developing countries for investment in projects such as infrastructure was aided by the increased access these countries obtained to financing from private markets. Over time, both private and
government credit expanded, and by the early 1980s many countries
were deeply in debt. What began as an effort to increase insufficient
market lending ended in a crisis exactly the opposite in character.
Many countries borrowed to such an extent that they now face difficulty servicing their extensive debts.
At the urging of the United States and others, the IMF and the
World Bank have undertaken increased responsibility to assist debtor
countries in dealing with their debt problems. The IMF and the
World Bank have increased their financing activities in support of
economic reform efforts by developing countries that are having dif-




144

ficulty repaying their extensive debts. They are also playing a more
active role in debt renegotiations between developing nations and
their private and official creditors. This change in mission, however,
has blurred the traditional distinction between the two institutions
and has raised fundamental issues regarding their purposes and operations in today's world economy. These issues require careful consideration. The roles of official international organizations in a world
of flexible exchange rates and integrated and efficient capital markets
should be appropriately reevaluated and redefined.
CONCLUSION
The postwar period witnessed an unprecedented transformation of
world financial markets. In the early 1970s the regime of pegged but
adjustable exchange rates devised in 1944 at Bretton Woods proved
unable to withstand the diversity of independent sovereign policies
that had evolved. The regime gave way to the system of flexible exchange rates now in use. That system proved able to accommodate
differing domestic monetary and fiscal policies during the 1970s, significant shifts in international capital flows, and increased international coordination of inflation-fighting, incentive-based policies
during the 1980s.
A multinational system of fluctuating exchange rates was a new experience for the world. Wide swings in the value of the dollar during
the 1970s and 1980s reflected underlying changes in worldwide domestic policies and events, including changes in relative inflation,
marginal tax rates, expected real after-tax rates of return, and productivity. Moreover, the advent of the system of flexible exchange
rates accompanied rapid growth in the volume of financial assets and
the development and liberalization of financial markets in many parts
of the world. New instruments and new procedures developed. It is
not surprising that some time passed before central banks and governments learned to operate effectively to control inflation.
The current system of flexible exchange rates permits countries to
achieve desired rates of inflation. In the 1980s many countries have
embarked on policies to lower inflation, and they have succeeded
much better than in the past. Countries acting alone must choose between price and exchange-rate stability. By choosing compatible policies, countries can achieve the goals of price stability and sustainable
output growth and can thereby reach the additional goal of increased
exchange-rate stability.




145

By focusing on long-term growth, price stability, and open trade, the
United States has been able to achieve the longest peacetime expansion in its history. The United States has simultaneously encouraged
the rest of the developed and developing world in its renewed regard
for the incentive-based, free-market policies that have enabled the
United States to achieve this goal. The continuation of these policies
can lead to the economic prosperity that is the common goal not only
of the United States but of all nations of the world.




146

CHAPTER 4

World Trade and Economic Growth
AS WORLD WAR II DREW TO AN END, much of the industrial
world lay in ruins. Hunger and despair, not hope, prevailed in wartorn Europe and Asia. Political events—first in Eastern Europe, later
in Asia—threatened the stability and freedom of nations on those
great continents. The United States emerged from the war stronger,
and more productive, than ever before. At this critical juncture in
world history, the United States had a choice: to return to an isolationist, protectionist policy, as it had in the interwar period, or to
assume the mantle of leadership that lay open to it. If it chose the
latter route, it would have to decide what kind of postwar world to
foster—one that guaranteed its own prosperity and security, while
seeking to maintain weaker countries as political and economic inferiors, or one that offered all nations the prospect for prosperity and
freedom enjoyed in the United States.
In looking back upon the past four decades, it is clear that the
United States discharged its leadership responsibilities by helping to
construct a world that offered hope, freedom, and the chance for
prosperity for all who sought it. The cornerstone of U.S. policy was a
vision of a world united, not divided; one in which the nations of the
world were free to exchange their goods, and their ideas, for the betterment of all. Rather than trying to subjugate Europe and Japan
economically, the United States sent massive foreign aid to rebuild
their economies. And rather than attempting to perpetuate historical
divisions within Europe in order to maintain its superiority, America
dispensed the aid in a way that fostered cooperation among those
countries, so that mutual economic and political cooperation would
replace the hostilities of the past. Today, Europe stands on the brink
of economic union, and the Organization for European Economic
Cooperation formed to coordinate the distribution of American aid
in Europe has evolved into one—the Organization for Economic Cooperation and Development—that includes the world's great industrial democracies.
American policymakers also recognized that trade, as well as aid,
was an indispensable ingredient in postwar reconstruction. Thus, the
General Agreement on Tariffs and Trade (GATT), which celebrated




147

its 40th anniversary this past year, was formed to reduce trade barriers that had been elevated in the interwar period. These barriers,
notably the Smoot-Hawley tariff, were intended to protect American
jobs and prosperity, but had instead lowered world trade and incomes. The principles of open and fair trade laid down in the GATT
recognized that opening U.S. markets to foster reconstruction abroad
would also create jobs and prosperity at home.
Today, the fruits of this policy are apparent. The growth rates of
the industrialized countries during these past 40 years are virtually
without parallel. Yet some see this phenomenal success as a cause for
concern. Despite enormous increases in productivity and living standards in the United States, they see the narrowed gap between living
standards here and abroad as a threat, rather than as the successful
culmination of American policy. They cry that the Nation must protect American jobs and American industry; that it must close its borders, thereby frustrating the aspirations of developing countries
today, as well as imposing enormous costs upon its own populace. As
this chapter reviews the past 40 years of trade policy, it is important
to recall the devastating experience of the 1930s—a time of isolationism—as well as the remarkable explosion in economic prosperity that
accompanied the openness of the postwar period. It is also crucial to
recognize those aspects of the international trading system, and of
GATT in particular, that can be improved upon, for these issues will
constitute the agenda for the future. The Nation's goal should not be
to close markets at home, but rather to continue to open markets
throughout the world.
ECONOMIC GROWTH AND TRADE IN THE POSTWAR WORLD
The end of World War II left a changed political and economic
map. While the United States emerged from the war greatly strengthened, the economic output and industrial capacity of many of the
combatants had been sharply reduced. Economic output in 1946 was
well below its pre-war (1939) level in France, Italy, West Germany,
and Japan. As late as 1950, output in West Germany and Japan had
not returned to pre-war levels. By contrast, U.S. output in 1950 was
two-thirds larger than the pre-war level, having grown on average
nearly 4.8 percent per year.
From this inauspicious beginning, the rest of the industrial world
soon joined the United States in experiencing rapid economic
growth. Average world output over the period 1950-86 grew at an
average rate of more than 4.2 percent, nearly doubling the 2.2 percent growth rate over the period 1870-1950. Even during the eco-




148

nomic expansion from 1870-1913, output had grown at an average
rate of only 2.5 percent.
While Japan, West Germany, Italy, and France offer the most dramatic examples of this phenomenon, every major industrial country,
with the sole exception of the United States, experienced faster
growth in the postwar period than in the period 1870-1913 (Table
4-1). When viewed in terms of output per man-hour—a measure of
productivity—the superior postwar performance is even more striking. Average productivity in the major industrial countries grew at
almost 3.8 percent during the postwar period, as compared with 1.7
percent from 1870-1913. Not only was productivity growth generally
higher in the postwar period than earlier, but also in many countries
the growth rate more than doubled, and in Japan and Italy it more
than tripled the rate in the 1870-1913 period.
Accompanying this rapid economic growth was an even more rapid
increase in trade flows between countries. As can be seen from Table
4-1, exports grew quickly during the periods 1870-1913 and 195087, while they were relatively stagnant from the onset of World War
I to 1950. Furthermore, trade has expanded more rapidly in the
postwar period than in the earlier period of economic growth. The
growth in world trade is attributable to a number of factors, including dramatic declines in tariff barriers throughout the industrial
world and the reduction of internal barriers in Europe with the formation of the European Community (EC)—a development promoted
by the United States. The expansion in trade is most notable for
those countries that grew most rapidly—Japan, West Germany, Italy,
and France. For the period from 1957—when the EC was formed—to
1970—by which time all internal tariffs had been eliminated—export
volumes for France and West Germany increased by more than 230
percent each, while Italian exports grew by more than 425 percent.
During this same period, exports from the United Kingdom, which
did not join the EC until 1973, increased by only 67 percent. The
comparable movements in gross domestic product (GDP) are also indicative, with output levels in France, Italy, and West Germany
roughly doubling, but output in the United Kingdom increasing by
only 45 percent.
The postwar expansion was not confined to industrialized countries. Some countries that were impoverished at the start of this
period made remarkable strides toward joining the ranks of the industrialized world. Between 1965 and 1985 developing economies as
a whole grew at an average rate of more than 5 percent. Among the
most successful economic performers were Singapore, Hong Kong,
and South Korea. Singapore and South Korea grew at annual rates of




149

TABLE 4-1.—Ou^u/ and Export Growth, 1870-1987
[Average annual percent change]
Item and year

United
States

Japan

West
Germany1

France

United
Kingdom

Italy

Canada

Real GDP:
1870 to 1913
1913 to 1950
1950 to 1987

4.1
28
3.2

2.5
18
7.5

2.8
1.3
4.4

1.7
1.0
4.0

1.9
13
2.5

1.5
1.4
4.3

3.8
2.9
4.4

2.0
2.6
20

1.8
1.3
62

1.9
1.1
4.7

1.8
2.0
4.1

1.2
1.6
2.7

1.2
1.8
4.4

2.0
2.3
2.3

85
20

4.1
-28
9.3

2.8
11
6.5

2.8

2.2
.6
9.0

4.1
31
6.1

Real GDP per man-hour:
1870 to 1913
1913 to 1950
1950 to 1987

Real exports:
1870 to 1913
1913 to 1950
1950 to 1987

4.9
22
5.2

12.4

o

3.8

1
Pre-war estimates for West Germany are adjusted for territorial change.
Sources: A. Maddison, Phases of Capitalist Development, Organization for Economic Cooperation and Development, and Council of
Economic Advisers.

more than 9 percent, while Hong Kong's annual growth rate was
nearly 8 percent.
As in Europe, rapid expansion of exports accompanied fast overall
growth in developing countries. Studies show that for the period
1963-85 real gross national product (GNP) per capita grew at more
than 6 percent, and manufactured exports grew at more than 14 percent, for developing economies with a strong outward, trade-promoting orientation, while for the same period countries characterized as
strongly inward-oriented and favoring self-sufficiency had real GNP
per capita growth rates averaging 1 percent and manufactured export
growth rates under 5 percent. Successful export-led growth in many
developing countries could not have occurred without the liberalization of industrial country markets in the postwar period. Yet the
greater successes have occurred in developing countries that have
also opened their own markets to imports. Singapore and Hong
Kong probably have the world's most liberal trade regimes. Although
it still has much room for progress, South Korea initiated major
trade liberalization efforts in the 1960s and again more recently.
TARIFF LIBERALIZATION IN THE POSTWAR PERIOD
Today, U.S. tariffs are the lowest in history, with average tariff
rates on all imports under 4 percent. This dramatic reduction in tariffs represents the progress achieved by steady efforts over the past
50 years to lower tariff barriers, both at home and among U.S. trading partners. The United States had not always been at the forefront
of tariff liberalization, however. In the 19th and early 20th centuries,
the United States had a far more protectionist trade regime than did




150

much of Europe. While the United Kingdom had pursued a policy of
essentially free trade prior to World War I, the United States had
consistently maintained high tariffs. From the end of the Civil War to
1900, U.S. tariff rates averaged nearly 30 percent on all imports, and
more than 40 percent on dutiable imports, i.e., those imports subject
to tariffs (Chart 4-1).
U.S. Tariff Rates, 1860-1987

Average Tariff Rate on
Dutiable Imports

Average Tariff Rate on
All Imports

20

10 -

1860

1870

1880

1890

1900

1910

1920

1930

1940

1950

1960

1970

1980

Source: Department of Commerce';.

The early 1900s saw several reversals in U.S. tariff policy. The Underwood Tariff of 1913 reduced tariff rates substantially, to an average of under 13 percent on all imports by 1915. But setbacks occurred following World War I, as the United States resumed a posture of political and economic isolationism. The Congress refused to
approve U.S. membership in the League of Nations, and the Fordney-McCumber Tariff of 1922 brought the average tariff rate on
goods subject to duties back up to nearly 45 percent by 1930. The
economic downturn sparked by the 1929 stock market crash prompted the Congress to go even further, and the Smoot-Hawley tariff it
passed in 1930 established the highest tariff rates in U.S. history. By
1932 the tariff rate on dutiable imports averaged nearly 60 percent.
The combination of high tariffs and the ensuing depression led to a




151

sharp decline in imports: between 1930 and 1934 the dollar value of
U.S. imports fell by nearly 50 percent. But the intended goal of protecting American jobs proved elusive. Exports shrank as U.S. trading
partners mounted retaliatory tariffs, and the economy continued to
deteriorate.
The passage of the Reciprocal Trade Agreements Act of 1934
marked the beginning of the U.S. tariff reduction policy that has endured to the present. Using the authority to negotiate reciprocal
tariff reductions on nonagricultural goods by up to 50 percent of
their Smoot-Hawley levels, the United States had entered into more
than 20 bilateral agreements by the beginning of World War II. This
approach brought average tariff rates back down to 35 percent of dutiable imports (and 12.5 percent of all imports) by 1940. The turnaround in trade flows, aided by the economic recovery, was dramatic:
from 1934 to 1939 U.S. imports and exports increased by 40 to 50
percent.
Although the trade negotiations conducted at this time were on a
bilateral basis, they already embodied a principle of nondiscrimination central to the multilateral approach the United States would
promote after the war. Tariff reductions were applied not only to negotiating parties but to other trading partners as well, on a most-favored-nation basis. The scope of the pre-war liberalization exercise
was limited, however, as major trading nations such as Japan and
many in Europe chose not to participate. The outbreak of World War
II interrupted U.S. efforts toward freer trade.
U.S. POSTWAR OBJECTIVES

The United States emerged from World War II as the world's
dominant military and economic power. Yet Soviet expansionism in
Eastern Europe, and civil war in China, threatened global stability.
Recognizing that political stability required economic prosperity, the
United States adopted a policy of promoting rapid economic growth
abroad. The three pillars of this policy were: a stable international
monetary system to finance-international transactions; an open trading system to foster global economic growth and cooperation; and
economic aid to help speed postwar reconstruction. This chapter focuses on the trade component of American policy.
The economic principles that govern trade among nations are essentially the same as those that govern trade among regions of a
single nation, or among individuals. Just as individuals, or States
within the United States, improve their standard of living by specializing in those tasks they perform best and exchanging these products
for goods produced by other individuals or States, so do nations gain
from international specialization and trade. Likewise, international




152

flows of investment, and the managerial and scientific know-how that
accompany these investments, bring gains to all parties. The remarkable prosperity the United States enjoys today is, in large measure,
attributable to the wisdom the Founding Fathers displayed 200 years
ago when they made constitutional provision for the unrestricted
flows of goods, capital, and people across State boundaries.
The gains from free international trade in goods and services are
likely to extend beyond the economic sphere. Prior to the adoption
of the Constitution, trade wars and other disputes were common
among the original States. A contemporary observer remarked: "As
to the future grandeur of America...it is one of the idlest and most
visionary notions that ever was conceived...[The] clashing interests of
the Americans...indicate that they will have no...common interest...a
disunited people...suspicious and distrustful of each other, they will
be divided into little commonwealths or principalities, according to
natural boundaries...." Just as the economic union created by the
Constitution led to a politically cohesive Nation, so can freer trade
among nations lead to increased international political cooperation.
Embracing a policy of free trade does not imply that governments
have no role in regulating international commerce. As with domestic
commerce, government policy must ensure a stable economic environment, open competition, free trade, enforcement of contractual
rights, and protection of intangible and tangible private capital. Governments that make unpredictable or frequent changes in tariffs or
other restrictions on trade are likely to disrupt economic activity.
Countries' failures to protect foreign investment or intellectual property rights reduce the returns to investment or innovation, decrease
investment, and restrict the international flow of capital and ideas.
Trade liberalization in one country generally benefits its trading partners as well as the country undertaking liberalization. International
coordination raises the possibilities for additional liberalization efforts and the consequent gains from expanding trade. Thus, creation
of a proper international trading environment requires active cooperation among nations to make and enforce the rules of the game.
Recognizing the economic and political benefits of broad international participation in trade liberalization, the United States made a multilateral approach the cornerstone of its postwar trade policy.
TARIFF REDUCTIONS IN A MULTILATERAL FRAMEWORK: GATT

As the war drew to a close in 1945, the Congress authorized the
executive branch to seek tariff reductions of up to 50 percent of rates
prevailing at the beginning of that year. The United States worked to
establish a multilateral framework for negotiations. Under U.S. leadership, an international conference was convened in 1947 to establish




153

an International Trade Organization (ITO) that would ratify the principles of free trade and create rules for enforcing these principles.
American calls for talks to reduce tariffs immediately led 23 countries
to participate in tariff-reduction negotiations in Geneva later that
year.
For a variety of reasons, the European nations resisted American
pressure for a rapid transition to free trade. These countries felt that
their economies were too weak to compete in open markets, and generally favored more interventionist economic policies than did the
United States. In addition, some wished to maintain the preferential
trading arrangements they had with their colonies and other countries,
and hence strongly resisted U.S. pressure for a comprehensive mostfavored-nation principle.
Nevertheless, the talks in Geneva resulted in important achievements, both in the reduction of tariffs and in the establishment of
general trading guidelines, which were drawn up as the General
Agreement on Tariffs and Trade. Although the International Trade
Organization was to have superseded GATT, the Congress failed to
approve it and it never came into being. Thus, GATT emerged as
the major forum for conducting international trade negotiations and
supervising the implementation of their results. The next section reviews the principles guiding trade policy under GATT, the extent of
GATT's achievements in tariff liberalization, and its remaining weaknesses in this and other areas of trade policy.
GATT Principles

The principles on which GATT was founded are the essential features of an open trading system. The GATT's aim of trade liberalization was to be achieved on a nondiscriminatory basis (that is, following the most-favored-nation or MFN principle); trade policy was to
be transparent (hence favoring tariffs over quantitative restrictions
whose effects on prices are less clear); tariff reductions negotiated
under GATT, or "concessions" in GATT parlance, were "bound" so
as not to increase above specified levels and were not to be replaced
by other trade barriers ("integrity of concessions"); GATT members
were to provide "national treatment" to each others' imports in matters of internal taxation and regulation; and nations were to follow
an orderly process of dispute settlement, abiding by the internationally agreed upon rules and procedures, rather than engaging in unilateral retaliatory measures that might lead to escalating trade wars.
Tariff Reductions under GATT

In retrospect, GATT has had remarkable success in reducing, and
in many cases virtually eliminating, tariffs. Three of the seven com-




154

pleted negotiating rounds stand out for their achievements in this
area.
Inaugural Round in Geneva, 1947. This first round of GATT
achieved substantial multilateral tariff cuts, as reductions negotiated
in some 123 bilateral agreements were extended on a most-favorednation basis to all participants. The United States made weighted-average tariff cuts of about 20 percent on dutiable imports. Participating European countries made less substantial cuts, from generally
lower tariff levels, because the Smoot-Hawley tariffs had put U.S.
rates in a higher range. But the effects of European concessions were
not felt until the European nations made their currencies convertible,
and abandoned most quantitative restrictions, at the end of the
1950s. The favorable economic climate in the United States allowed
it to confer these asymmetric reductions. With most major U.S. industries enjoying trade surpluses, the specter of U.S. protectionism—
although not absent—was not dominant.
Tariff concessions in each of the four rounds held over the next 15
years were comparatively minor, in part due to limited negotiating
authority from the Congress, which demonstrated an increasing
penchant to protect U.S. industry from competition. The combined
effect of these talks was still notable, reducing U.S. tariffs by about
10 percent.
The Kennedy Round, 1963-67. The momentum for this round came
from the United States, which wanted to ensure continued trading
access to the newly formed European Community. The Kennedy Administration paved the way for more rapid progress on tariffs by obtaining enhanced negotiating authority in the Trade Expansion Act
of 1962. Not only did this act allow for high tariff cuts (up to 50 percent), but it also eliminated some restrictions that the Congress had
earlier put in place to prevent reductions in specific industries. The
Kennedy Round of GATT that ensued was even more successful than
the first Geneva Round had been. In addition to reducing average
tariffs on dutiable imports by more than one-third, it included much
broader country coverage, as important trading countries such as
Japan and West Germany had since acceded to GATT. Because the
negotiating principle changed from an item-by-item focus ("requestoffer" in GATT parlance) to a formula approach of automatic 50
percent cuts on all nonagricultural products with exceptions to be
negotiated, the product coverage was also more comprehensive than
any prior GATT round.
The Tokyo Round, 1973-79. Again using a formula approach, major
industrial nations agreed to cut average tariffs by about one-third in
the Tokyo Round of GATT. The phased-in reductions from this
round were completed in 1987. Table 4-2 shows pre- and post-




155

Tokyo Round industrial tariff rates, based upon the concessions negotiated during the round and the prevailing trade flows. With
weighted-average tariff levels of major industrial nations brought
down to levels below 5 percent, and in most cases these tariffs are
bound not to increase under GATT, a case can be made that the
goal of multilateral tariff liberalization is largely accomplished.
TABLE 4-2.—Tokyo Round Tariff Cuts by Stage of Processing, Selected Countries
[Percent]
Country and period

All industrial
products

Semimanufactures

Raw
materials

Finished
manufactures

United States:
6.5
4.4
31

0.9
.2
77

4.5
3.0
33

8.0
5,7
29

6.6
4.7
29

Rates before Tokyo
Rates after Tokyo
Percent cut

.2
.2
15

5.1
4.2
27

9.7
6.9
29

5.5
2.8
49

67

1.5
.5

6.6
4.6
30

6.0
52

1.0
.5
48

8.3
44

European Community:
Rates before Tokyo
Rates after Tokyo
Percent cut
Japan:
Rates before Tokyo
Rates after Tokyo
Percent cut

...

12.5

Canada:
Rates before Tokyo
Rates after Tokyo
Percent cut

13.6

7.9

42

14.8

13.8

8.3
40

Sources: Director General of GATT and Congressional Budget Office.

Yet the average figures mask considerable discrepancies on individual products, as countries have retained high "tariff peaks" on items
for which there is strong domestic protectionist pressure, such as textiles, apparel, and footwear (Table 4-3). Moreover, as shown in
Table 4-2, nominal tariffs on raw materials and semimanufactures
are lower than tariffs on manufactures. This escalated tariff structure,
by reducing input costs for manufacturers, results in higher "effective
protection" for processed goods than is reflected in the nominal
tariff rate on these manufactures. Finally, although country and product coverage has increased considerably since the inception of GATT
tariff negotiations, large areas still remain less-than-fully incorporated. Because of previous "special and differential" treatment, developing countries, including those newly industrializing economies that
have made rapid strides over the past 20 years, have participated
little in either the reduction or the binding of tariffs. Although tariffs
have been cut on agricultural products, these cuts have been less
even across countries (Table 4-3). Furthermore, agricultural tariffs
are bound less frequently than are tariffs on manufactures.




156

TABLE 4-3.—Tokyo Round Tariff Cuts by Industry for United States, European Community,
and Japan
[Percent]
Pre-Tokyo Round tariff rates
Industry

Agriculture, forestry, and
fisheries
Food, beverages, and
tobacco products
Textiles
Wearing apparel
Leather products .

Eurooean

Percent cut

Post-Tokyo Round tariff rates

European

United
States

2.2

Com-

United
States

Japan

munity
7.1

...

18.4

1.8

6.3

12.4

25.4

14.4
27.8

3.3

4.7
9.2

16.8

13.8

22.7

16.4

5.6

9.8
3.7

Footwear
Wood products
Furniture and fixtures
Paper and products
Printing and publishing

8.8
3.6
8.1
.5
1.1

11.7

Chemicals
Petroleum and related

3.8

11.5

Rubber products
Nonmetallurgical mineral
products
Glass and glass products

3.3
8.5
7.3
3.2

3.0

7^8
2.1
.2

4.2
8.8
1.7
4.1
.2

Com-

Japan

munity
4.9
10.1

7.2

13.4

2.0

United
States

European
Com-

Japan

munity

18.4

18

31

0

25.4
3.3
13.8
3.0

25
36
18
25

19
27
20
. 46

0
0
0
0

15.7

2.5
5.6
5.4
2.1

5"l
2.1
.1

0
53
49
60
36

1
24
34
26
34

4
0
35
0
50

11.6

6.2

2.4

8.0

4.8

37

30

23

1.4
3.6

1.2
5.3

2.8
1.5

1.4
2.5

1.2
3.5

2.2
1.1

0
31

0
34

21
27

9.1

5.2
9.9

.6
7.5

5.3
6.2

3.7
7.7

.5
5.1

42
42

29
22

17
32

6.2
2.6
7.9
6.5
9.9

3.3
1.1
6.9
9.1
7.4

3.6
4'.8

3.3
4.4

4.7
2.1
5.5
4.4
7.9

2.8
1.1
5.2
4.4
4.3

23
42
36
34
33

24
19
30
32
20

15
0
25
52
42

6.0
6.0

2.5
4.2

8.0
4.7

1.5
4.6

24
- 46

22
39

75
23

10.7

Iron and steel
Nonferrous metals
Metal products
Nonelectrical machinery
Electrical machinery

4.7
1.2
7.5
5.0
6.6

Transportation equipment
Miscellaneous manufactures....

3.3
7.8

10.2

7.7

Source: Congressional Budget Office.

Weaknesses of the GATT Framework

The exceptions in product and country coverage for GATT-sponsored tariff reductions conflict with the basic GATT aim of achieving
broad-based trade liberalization. Yet these and numerous other exceptions to GATT's main principles to foster open and fair trade
have been accepted as necessary compromises in an agreement
whose only teeth are those lent willingly by member countries.
Because those principles ultimately embodied in GATT had been
honored more often in the breach than in the word prior to the formation of GATT in 1947, it is hardly surprising that the initial exceptions list was relatively long. More telling is the fact that, rather than
shrink, this list has grown longer. Safeguard clauses allow countries
to take steps backward, on the overall goal of liberalization, by imposing quantitative restrictions (which also violate transparency) or
by ignoring tariff bindings in the event of balance of payments concerns, injury to domestic producers (the "escape clause"), or a perceived threat to national security.
Discriminatory application of protection often occurs when countries invoke the balance of payments safeguard—as the Europeans
did in the 1950s and more recently many developing countries have




157

done. More generally, the most-favored-nation principle was sidestepped to allow the continuation of preferential trading areas in the
early years of GATT; customs unions and free-trade areas were subsequently provided for even though they offer members better than
most-favored-nation treatment and hence discriminate.
The GATT principle of integrity of concessions is weakened by the
fact that discipline on domestic subsidies that can undo tariff concessions is not very effective. Integrity can also be violated by the use of
safeguards and "grey-area" measures, such as "voluntary" export restraints—quantitative restrictions that violate GATT's spirit but not
its letter. As discussed below, these and other nontariff barriers have
become the major obstacle to trade liberalization. Although many
GATT signatories have accepted codes limiting their use in the
Tokyo Round, nontariff barriers remain an area of weakness for
GATT. Although GATT does not formally provide exceptions to the
use of its dispute settlement procedures, these procedures have
proved sufficiently cumbersome and limited in authority that they
have failed to replace the threat of retaliation in the resolution of
trade disputes.
Limits on product coverage have been made by commission and
omission, with the result that GATT is by and large an agreement
prescribing the rules of the game for those manufactured products
that are not too politically sensitive in the industrial countries. Although agricultural products are formally included, the effective exemption of two of the largest markets, the United States and the EC,
has made the agreement largely irrelevant for the principles guiding
agricultural trade. In the U.S. case, exceptions were granted at
GATT's inception and in a waiver in 1955. And although it clearly
distorts trade, the EC's border policy of using variable levies to
defend domestic price supports has not been declared GATT-illegal.
Due to grey-area measures, trade in textiles and apparel, and more
recently in steel, takes place outside of GATT discipline. Trade in
services, an expanding component of world output, has never been
covered by GATT. Although protection of intellectual property
rights is certainly consistent with GATT principles, the lack of specific codes of behavior on intangibles has effectively excluded them
from GATT treatment.
Although GATT's membership list continues to expand, effective
country coverage remains elusive. Under what is known as "special
and differential treatment," wide-ranging exemptions to GATT concessions and disciplines have been granted to developing countries
since the Kennedy Round. As another component of special and differential treatment, industrial countries have created "Generalized
Systems of Preferences" (GSP), which allow developing countries cer-




158

tain tariff concessions superior to the most-favored-nation rates of
GATT. At the same time, special treatment in GATT has reduced
the negotiating leverage of developing countries, preventing them
from gaining GATT concessions of most value to them, including reduced tariffs on manufactures and progress on nontariff measures,
safeguards, and the treatment of tropical products and agricultural
commodities. Although developing countries argue that they need
special and differential treatment because of the less advanced states
of their economies, their economic progress is hindered by the high
tariffs and quantitative restrictions these exemptions have allowed
them to maintain.
As the economic disparities among developing countries widen,
with the newly industrializing economies such as South Korea, Brazil,
Singapore, and Mexico making rapid strides in export markets, pressure is mounting in industrial countries to alter radically the special
provisions. Developed countries may unilaterally end the concessionary tariffs granted to these most successful economies, as the United
States recently did by graduating Hong Kong, Singapore, South
Korea, and Taiwan from GSP status. In a multilateral context, the
successful developing countries must be persuaded to accept GATT
discipline over their own barriers. The aim is to encourage these
better-off economies to provide market access to industrial and other
developing country exporters more commensurate with the benefits
they themselves enjoy, thereby also increasing the export opportunities for the poorest developing countries.
THE TRADEOFFS IN U.S. TRADE LEGISLATION—TARIFF REDUCTIONS
VERSUS CREEPING PROTECTIONISM

Protectionist sentiment was not strong in the immediate postwar
period, but some elements opposed liberalized trade. These sentiments have been on the rise. As tariff barriers have steadily fallen,
other barriers to trade have arisen. Because the Congress has granted authority to negotiate tariff reductions, while at the same time
channeling protectionist sentiment into legislation, a curious pattern
has emerged in the trade laws of the postwar period. Trade bills
needed by the executive branch for negotiating authority to reduce
protection often include provisions that make it easier for firms to
qualify for protection, and restrict Presidential discretion to limit protectionist measures.
Examples of this tradeoff are numerous. In 194 7 President
Truman, bowing to congressional pressure, issued an Executive
order requiring all future U.S. trade agreements to include an escape
clause that allowed the United States to renege on tariff concessions
that injured domestic industry—a measure that became the basis for




159

GATT's safeguards on these grounds. In the 1950s the Congress
added this provision to statute and strengthened it. In 1955, to win
support for further tariff reductions, President Eisenhower proposed
that Japan voluntarily limit exports of some cotton textiles. Under
pressure from domestic coal and oil producers, the Congress, as part
of its 1955 extension of the Trade Agreements Act granted Presidential authority for quantitative restrictions to be used for national security purposes.
To gain congressional support for the Kennedy Round negotiations, in 1961 President Kennedy entered into the Short Term Arrangement that restricted cotton textile exports from 17 countries. In
addition to authorizing broad tariff negotiations, the Trade Expansion Act of 1962 authorized the President to withdraw tariff concessions from countries that had "unreasonable" restrictions on U.S. exports and to negotiate quantitative restraints on products that injured
U.S. industry, Then, within the same year, the Long Term Arrangement regulating trade in cotton textiles was launched.
Protectionist sentiment grew in the 1970s and 1980s as some U.S.
trading partners were perceived not to be offering equal opportunities for trade. Once again, enhanced textile protection, in the context
of the Multi-Fiber Arrangement of 1974, was the price paid to gain
congressional authorization for negotiating tariff reductions in the
Tokyo Round and for fast-track congressional approval of any agreement on nontariff measures negotiated through GATT. The Trade
Act of 1974 also reduced Presidential discretion in implementing
International Trade Commission recommendations for protection,
and introduced Section 301, a provision for countering foreign practices that "unreasonably" restrict U.S. exports.
The record of the 1980s has largely paralleled that of the 1970s.
The 1988 Economic Report of the President documented the sharp increase in unfairness findings during the 1980s (against "dumping" at
below fair prices and government subsidization of exports), cases for
which no Presidential discretion exists. Nontariff barriers, for products such as steel, autos, machine tools, and textiles, have been entered into or extended. This Administration has, however, successfully resisted passage of several highly protectionist trade bills. Attempts to pass textile and apparel bills that would have increased
protection for one of the most highly protected industries in the
United States have been twice successfully repelled. A potentially disastrous trade bill that would have limited trade based upon bilateral
trade balances has been successfully modified. While the Omnibus
Trade and Competitiveness Act of 1988 has some troubling features,
it also authorizes the President to reduce tariffs by up to 50 percent
under the current Uruguay Round GATT negotiations.




160

This Administration has vigorously sought ways to expand free
trade. Its attempts to open foreign markets to U.S. products have
won some notable successes, while the resort to protectionist retaliation measures have been infrequent. It inaugurated the Caribbean
Basin Initiative, and won congressional extension of the Generalized
System of Preferences, in order to provide developing countries with
ready access to U.S. markets. The United States-Israel Free-Trade
Agreement was the first such agreement for the United States, while
the United States-Mexico Framework Understanding should help to
improve trade and investment flows between the two neighbors. Finally, the United States-Canada Free-Trade Agreement will bring tremendous benefits to both sides.
Notwithstanding the pressures for protectionism over the past 40
years, the move toward a liberal trading order has been remarkable.
Tariffs on most products have been reduced to low levels, and trade
flows and economic growth have responded accordingly. From 1950
to 1986 world real GDP has increased by 350 percent, while world
trade, in real terms, has grown by more than 800 percent. The task
for the future is to ensure that this progress continues, and that nontariff barriers are reduced.
THE SPREAD OF TRADE-DISTORTING MEASURES
Because most nations' tariffs are "bound" by GATT, the signs of
increased protectionism in the 1970s and 1980s are not found in
higher tariffs, but in other, often more hidden, forms of protection.
Using a potentially limitless array of measures, governments distort
trade flows and production decisions by subsidizing exports and domestic production, and by constricting the flow of imports. Import
barriers include: assessed duties on unfairly traded products; "hardcore" nontariff barriers, such as quotas and voluntary export restraints or voluntary restraint agreements, which are poorly disguised
quantitative restrictions; and "softer" nontariff measures, such as
technical and health standards, which tend to distort trade if imposed
for nonscientific reasons or applied in a discriminatory fashion. Many
of these measures are difficult to quantify; no precise estimates of
their tariff-equivalents, or their trade-distorting impacts, exist.
Yet convincing qualitative evidence of this rising interventionist
and protectionist trend is available. One example of such evidence is
the amount of domestic subsidies that governments supply to private
industries and public corporations. Because these subsidies alter domestic production, they may distort trade flows and comparative advantage. As shown in Table 4-4, their amount has increased as a percent of GDP from 1960 to 1986 for most countries, the important




161

exception being the United Kingdom, whose subsidy rate peaked in
the mid-1970s. Two additional factors in the table qualify this observation. First, it would appear that the trend toward greater subsidization was reversed for many countries in the 1980s. Second, although
the U.S. subsidization rate has grown, it is still significantly below
that of other countries, reflecting the more market-oriented approach, and the sparsity of public corporations, in this country.
TABLE 4-4.—Growth of Subsidies in Selected OECD Countries, 1960-86
[Percent of GDP]
1970

1960

Country

1975

1986

1980

United States

0.2

0.5

0.3

0.4

Japan

(i)

11

15

15

11

8

1.7

2.0

2.1

2.1

West Germany
France

16

1.9

2.0

1.9

United Kingdom

1.9

1.7

3.5

12

13

19

20

Canada

.8

.9

2.5

2.7

2

2.4

Italy ...

0.6

2.2

1.7
2

23
2.0

1

Not available.
Data are for 1985.
Note.—Based on national income accounts.
Source: Organization for Economic Cooperation and Development.
2

Countries also distort trade and compete unfairly for exports by
providing export subsidies. In agricultural trade, many countries, including those in the EC and the United States, provide subsidies or
rebates for exports of agricultural goods. For manufactured goods,
the more common means is through "export financing," which provides subsidized credit to importers of the products. Data from the
Organization for Economic Cooperation and Development (OECD)
show that the implicit subsidy in export financing by 14 member
countries increased by more than two-thirds from 1979 to 1982. Following successful U.S. efforts in the early 1980s to negotiate increased discipline over export credit subsidies through the OECD
Export Credit Arrangement, the subsidy component in export financing has decreased substantially.
Foreign export or production subsidies unfairly distort trade, and
impose burdens on domestic producers of like products. Although
these foreign subsidies may actually benefit the domestic economy if
it is a net importer of the subsidized good, GATT articles and the
laws of many nations, including those of the United States, recognize
these subsidies, as well as dumping, to be distortive and unlawful actions. Under U.S. law, dumping occurs when a foreign firm sells in
the import market at a price below the price charged in the home
market, or below costs as estimated by the Department of Com-




162

merce. Under the law, the United States may, subject to certain
injury tests, impose duties to offset this dumping margin. Similarly,
U.S. law allows duties to be imposed to "countervail," or offset,
unfair advantages that accrue to foreign firms arising from government production or export subsidies.
Regardless of the intentions, or economic merits, of laws restricting dumping and foreign subsidization, their net impact can be protective. A finding that dumping has occurred can depend on estimates of costs of production if price data for the foreign market are
not available. Precise cost estimates are often difficult to obtain, so a
foreign firm may be found erroneously to be in violation. Furthermore, although many petitions may ultimately be rejected under
these statutes, the filing, or even threat of filing, of unfair trade cases
can restrict imports. It is costly for foreign firms to defend themselves against a dumping charge. Moreover, in the event of an affirmative finding, the level of import duties imposed retroactively is uncertain. The threat of such action is likely to raise prices foreign
firms charge, thereby having a protective effect similar to a tariff,
except that the revenue from protection is transferred from U.S. taxpayers and consumers to the foreign producer.
These legitimate procedures to counteract foreign unfair trade
practices can result in cartel-like effects. Subsidization, and other distortions, are rife in the world steel market. In addition to subsidizing
domestic producers, EC countries have used programs limiting imports (either through voluntary restraint agreements or minimum
import prices) and internal production quotas to "rationalize" production. In 1982 the U.S. steel industry filed more than 130 dumping
and countervailing duty petitions against steel imports from various
foreign countries, including EC members. An extensive Department
of Commerce investigation found subsidies, in some cases exceeding
20 percent, against some producers in the United Kingdom, Italy,
France, and Belgium. It also found that other European producers,
including the large West German producers, were either unsubsidized or received de minimis subsidization. The results were troubling
for EC countries whose producers were found to be subsidized, as
countervailing duties against their producers would effectively exclude them from the U.S. market. Ultimately, in October 1982, European producers agreed to a voluntary restraint agreement encompassing carbon steel exports from the EC to the United States.
The steel industry continued to face strong competition from
countries not parties to the agreement. The industry proposed to file
a large number of complaints that would have burdened the agencies
responsible for making "unfairness" determinations and would have
raised costs to importers. The alternative chosen was to negotiate ad-




163

ditional voluntary agreements to reduce imports. The current agreements, reached with 19 countries plus the EC, are estimated to have
an annual cost to consumers of several billion dollars and are scheduled to expire September 30, 1989. The steel industry is currently
operating near capacity and, for the first time since 1981, reported
significant profits in 1988.
While the United States is the dominant user of countervailing
duty laws, other nations use antidumping provisions more aggressively. Of 460 countervailing duty cases reported to GATT between
1980 and 1986, more than 60 percent were initiated in the United
States. But, of the 1,272 antidumping cases reported during this
same time period, 27 percent originated in the United States, whereas 33 percent came from Australia, 22 percent from the EC, and 18
percent from Canada.
These actions significantly increased in the United States and
abroad during the 1980s. In the United States, for example, the
number of countervailing duty cases increased from an annual average of 21 during the period 1975-79 to an annual average exceeding
40 during the period 1980-86. In the EC, the number of antidumping
cases reported increased from 71 for 1971-79 to 280 for 1980-86.
In contrast to antidumping and countervailing duty provisions, the
protection offered through the "hard-core" nontariff measures falls
largely outside of GATT jurisdiction. Table 4-5 represents one crude
attempt to compare the prevalence of these barriers across countries
and over time. It shows the percent, in value terms, of a country's
imports that are covered by quantitative restrictions, voluntary export
restraints, and nonautomatic licensing. While the numbers may not
be quantitatively important, they are qualitatively instructive. They
make clear that the United States is not the main offender. It is noteworthy that these barriers particularly seem to affect the exports of
developing countries.
TABLE 4-5.—Industrial Country Imports Subject to "Hard-Core" Nontariff Measures,

1981 and 1986
[Percent]
Source of imports
Industrial countries

Importer

1981

Developing countries

1986

1981

1986

9

15

14

17

Japan

29

29

22

22

European Community

10

13

22

23

All industrial countries

13

16

19

21

United States

Source: The World Bank, World Development Report 1987.




164

SOURCES OF INCREASED PROTECTIONIST SENTIMENT

Many explanations have been cited to account for the increase in
protectionist sentiment. These include the deterioration in the U.S.
merchandise trade balance; the continuation of foreign subsidies and
nontariff barriers; declining net exports in traditional U.S. strongholds, such as agricultural and manufactures; and a protracted period
of inflation and high unemployment during the 1970s and early
1980s, which contributed to the notion that somehow imports were
responsible for lost domestic jobs. Other contributory factors include
a perception that the United States had lost its technological "superiority" and even its "competitiveness," and that an industrial strategy,
coupled with protectionist trade policy, was needed to regain American superiority. These feelings were probably accentuated by a general belief that U.S. exports were subject to unfair barriers, a position
that might have had some merit as foreign agricultural protection increased, and as the importance of service-type industries that were
not (and still are not) subject to GATT discipline increased.
Despite popular beliefs, trade restrictions are inappropriate tools
for attempting to reduce trade deficits. The trade balance reflects the
discrepancy between national output and national expenditure, and
little reason exists to expect protection to alter either of these significantly. While import protection in automobiles may reduce the trade
deficit in that sector by increasing consumption and production of
domestic autos, this reduction can be achieved only by diverting the
resources required to expand auto production from other more productive uses within the economy.
The notion that imports cost American jobs is probably the most
common argument for protection. While it is certainly true in a
narrow sense that employment in an import-competing sector might
decline if import protection were reduced or eliminated, this fact
does not imply that total U.S. employment would fall. Rather, protection in that sector reduces the resources available for expanding
output, and employment, in more efficient export sectors. Most studies of the consumer cost per "job saved" through protection put this
cost at more than $100,000 per year, far exceeding the typical earnings in the affected industry. Moreover, protective policies that
reduce foreign exports to the United States invite retaliation, which
reduces the demand for U.S. exports, causing further inefficiencies in
the allocation of resources and imposing extra costs on consumers.
Certainly unexpected increases in imports can cause temporary unemployment as workers retrain for new jobs. But the appropriate response is to facilitate labor adjustment, not to discourage it through
permanent protectionist policies. Trade Adjustment Assistance, first
introduced as part of the Trade Expansion Act of 1962 and signifi-




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cantly liberalized by the Trade Act of 1974, may be viewed as one
attempt to ease this adjustment and to mollify domestic opposition to
trade liberalization. The program, which is designed for firms and
workers hurt by import competition, provides financial, technical, and
retraining assistance to make firms more competitive and to assist relocation of workers. If adjustment through normal market forces is
allowed, the displaced workers will find employment in other industries. Currently, the average period of unemployment is a brief 13
weeks. If permanent protection is offered, adjustment never occurs,
and the cost of the policy remains forever. The rules governing explicit protection under the escape clauses in U.S. trade law (Section
201) and in GATT (Article XIX) recognize this danger and require
relief to be temporary.
The recent economic record demonstrates that imports do not destroy domestic jobs. From 1982 to 1987 the volume of U.S. imports
increased by more than 65 percent, while U.S. real GNP expanded by
more than 21 percent, and employment by 13 percent. Meanwhile,
West German imports increased by over 27 percent, its GNP grew by
nearly 12 percent, and employment stagnated. During this period the
U.S. merchandise trade balance fell sharply, while the West German
trade balance rose by more than $45 billion.
Recent proponents of protectionism have focused on the use of
"strategic trade" policy to promote selective, presumably high-technology, sectors. The essential notion is that economies of scale and
learning-by-doing render the competitive paradigm inappropriate in
these industries. Trade policy, by preserving the home market for domestic firms, or by promoting selected industries and their exports
through subsidies, can be used effectively to prevent foreign competition and to increase the monopoly profits domestic firms earn from
foreign sales.
These policies of targeting industries with import protection and
export subsidies are harmful. The import restrictions hurt both domestic consumers and foreign producers. Because foreign countries
may retaliate in kind, a situation can arise in which all countries are
worse off, but no country has the incentive to reduce tariffs unilaterally. For manufactured goods, the costs of protection are likely to be
even greater because the resulting market segmentation reduces the
inherent benefits derived from economies of scale and product diversity. Promoting particular sectors through export subsidies is equally
costly. The subsidies impose costs on taxpayers, are inconsistent with
international trading rules, and invite retaliation.
Moreover, the argument for government activism is predicated on
the notion that governments can effectively identify those industries
that are at the forefront of technological innovation, and can devise




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appropriate trade policies to foster their dominance. This kind of
fine-tuning, reminiscent of attempts to fine-tune the macroeconomy,
presumes that policymakers have access to enormous quantities of information, wisdom, and objectivity. To be successful it also would require government officials to be able to foresee the major consequences of their actions.
If government pursues such activist policy, it is reasonable to ask
what the policy response will be when it mistakenly backs a losing industry. Will it be willing to remove protection, or will it feel compelled to shelter an inefficient industry behind a tariff wall in order
to avoid facing up to the mistakes it made? If business executives err,
they are forced to face the cost of their decisions through the discipline of the market—lower prices, reduced output, and even bankruptcy. No such discipline is imposed on government officials, who
can reach deep into the pockets of taxpayers and consumers to hide
their failure. The reality seems to be that protection has been granted to sunset, not sunrise, industries and that this protection is hard to
remove.
POLITICAL ECONOMY OF PROTECTIONISM

One possible explanation for continuing protectionist pressures is
that economic efficiency is not all that matters; notions of equity and
fairness also have considerable influence on public policy. In most
developed countries, government agricultural programs, as well as
the protection of some industries, are typically justified on these
grounds. However, these objectives can be achieved through policy
instruments superior to the trade-distorting devices that have been
used..
A more likely explanation relates to other distributional consequences of trade-distorting policies. The benefits are concentrated
among the relatively small number of people employed or owning
assets in the protected industry. Meanwhile, the higher overall costs
are paid for by the large numbers of taxpayers who foot the bill for
government programs, and of consumers who pay higher prices for
the goods. Because it is difficult to be informed on every issue, the
many who are adversely affected by protection may not be aware of
these costs. Yet those few who stand to gain from protection are
likely to be well aware of the benefits. Just as with pork-barrel
projects, the gainers are far more likely to make their voices heard
than are those who are hurt.
It is not surprising that the Congress has traditionally been more
protectionist than the President. The President, regardless of his
party, responds to a national constituency, and thus needs to consider the impact of protectionist policies in a much broader context.




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Senators and Representatives respond to smaller constituencies,
wherein those few who gain from protection make their opinions
known forcefully. If producers and workers in enough regions are affected, or if they are heavily concentrated in some regions, they can
influence legislation. This President, like most postwar Presidents,
has represented the voice of free trade within the government. Laws
that attempt to reduce the President's discretion or authority increase
the protectionist thrust of trade policy.
Protectionist efforts are most likely to be resisted when the distributional costs of protection are also highly concentrated. The steel
agreements hurt domestic steel users, and recently efforts have been
mounted by some of them, such as Caterpillar, to oppose renewal of
the voluntary restraint agreements. Fabricators of copper wire and
other copper products successfully lobbied in 1984 against protection
for the copper industry, after an International Trade Commission decision ruling domestic copper producers had been injured by imports. Similarly, because the higher semiconductor prices that followed an agreement to stop Japanese dumping hurt high-technology
American industries that use this product, industry associations representing the two groups have been working together to fashion policies that will be mutually beneficial and, presumably, less protectionist. By contrast, consumers of final products receiving protection,
such as textiles and apparel, are in a relatively weak position to protest the costs of import restrictions.
The benefits to producers in the protected industries can be significant, and include increased profits on both the inputs and final
products. One study of trade restrictions estimated annual gains to
producers at $3.8 billion for carbon steel products, $2.6 billion for
auto firms, $5 billion for dairy products, and more than $20 billion
for textile and apparel firms. Depending on how they are administered, some of these programs impose substantial costs on foreign
producers, while others essentially transfer, through higher import
prices, additional benefits to foreign firms. The same study estimated
that U.S. restrictions transferred benefits of $2 billion to foreign steel
producers, $2.2 billion to foreign (Japanese) auto firms, and $1.8 billion to foreign textile firms. Even if these estimates are off by a factor
of three, they are still prizes well worth pursuing. The even higher
costs of these prizes are borne by a large group of consumers and
taxpayers.
Not surprisingly, considerable real resources are spent in petitioning governmental groups that make and implement policy. Everyone,
whether having spent time in Washington or not, is aware of the
effort, time; and resources lobbyists spend trying to influence trade
policy. Nor is the lobbying activity restricted to representatives of




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U.S. firms. Department of Justice records show that in 1986 Japan
spent more than $11 million on economic lobbying activity in the
United States, Indonesia spent more than $7 million, and South Korea
more than $4 million. The resources spent on these lobbying activities are wasted in an economic sense because they are withdrawn
from potentially productive activities.
Protection in the form of licensing and quotas may lead to even
greater inefficiency than tariffs. If the quotas are auctioned off, as in
Hong Kong where licenses to export clothing to the United States
may sell for 40 percent of the price of the clothing, then no additional inefficiency occurs. But if the quotas are allocated in some other
manner, as is usually the case, then people will be willing to spend
scarce resources trying to obtain them. Because the ownership of
quotas confers private gains, but no gains to the economy as a whole,
this rent-seeking activity is wasteful. It can be especially deleterious
in less developed countries, as studies indicate that the implicit value
of import licenses may have been as high as 7.3 percent of GNP in
India, and 15 percent of GNP in Turkey.
THE SPECIAL THREAT OF NONTARIFF MEASURES

The opposing postwar trends toward lower tariffs, but greater use
of nontariff measures, raise two related questions. First, does it
matter what form of protection is used; second, why has this change
in policy mix occurred?
Most economists view nontariff measures as being more costly than
tariffs. Nontariff measures may circumvent U.S. laws and GATT, and
may be negotiated, as was the case with the earlier restraint on Japanese car exports to the United States, even when there is no determination of an unfair trade practice, or of injury to domestic firms.
Unlike escape clause relief, there is generally no provision for reducing protection over time ("degressivity"), nor is a formal time limit
imposed on the protection. The agreements do expire, but they may
be renegotiated, as has been the experience in textiles and apparel.
Producers in these industries appear determined to maintain protection.
Quantitative restrictions are also inferior to tariffs because they
cartelize the market. By granting firms more monopoly power, they
lead to even higher prices. Studies indicate the restraints on Japanese
automobile exports increased the price of Japanese cars in the United
States by up to $1,000, and increased the price of U.S. cars by about
$400. Moreover, because imports cannot respond to increased
demand, unexpected shortages are more likely to develop under
quantitative restrictions. Recent shortages of domestic steel forced
domestic users to import more costly finished products not covered




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under the agreements. Hence, quantitative restrictions can undermine the competitiveness of downstream industries even more than
do tariffs.
Another problem that inevitably arises is how to apply the nontariff
measures. Whereas tariffs will typically be applied on a most-favorednation basis, quantitative restrictions are usually imposed selectively,
with specific limits granted to each exporting nation. The issue of selectivity versus most-favored-nation treatment is of great concern to
developing country exporters, as well as to importing nations. Apart
from transferring tariff revenues abroad, selectivity further distorts
trade, as U.S. importers cannot import from the least expensive, or
highest quality, foreign supplier.
However, under flexible exchange rates, domestic firms wishing to
avoid risk may prefer quantitative restrictions. Unpredictable movements in exchange rates can affect the domestic currency price of
foreign products, making the amount of protection afforded by a
tariff uncertain. Quantitative restrictions insulate the level of imports,
and hence domestic price, from foreign price or exchange-rate movements.
Lack of transparency often makes nontariff measures more acceptable than tariffs from a domestic political standpoint. Whereas consumers readily recognize tariffs as a form of taxation, they are unlikely to perceive the similar effect of quantitative restrictions, because
the price changes are hidden. Nontariff measures are also usually
more acceptable to exporting nations. The use of tariffs under
GATT's escape clause requires compensation to foreign exporting
nations, or allows them to retaliate. Because voluntary restraints fall
in a grey area outside of GATT jurisdiction, the country imposing
them need not worry about these provisions. Exporters are compensated indirectly because they can charge higher prices for the reduced amount of goods being shipped, or can divert exports to
higher profit items. Naturally, the losers are consumers and taxpayers
in the importing country.
A more transparent system would be highly preferable for the population at large. If the tariff-imposing nation had to reduce other tariffs as compensation, or if some of its exporting industries faced
higher retaliatory tariffs abroad, an active constituency to limit the
extent or length of protection would appear.
The United States has suggested one innovative strategy for dealing with nontariff measures in the Uruguay Round negotiations on
agriculture. Before the effects of existing nontariff barriers can be reduced, the proposal calls for "tariffication" of these barriers—that is,
converting them into tariff equivalents that will then be the basis for
negotiations on barrier removal. The Japan beef and citrus agree-




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ment is a good example of the potential of this approach. The agreement calls for the phase-out, over a 3- to 4-year period, of import
quotas on beef and oranges, and of Japan's Livestock Industry Promotion Corporation's import management operations. These nontariff measures will be replaced by tariffs that are scheduled to decline
to 50 percent by 1993,
While confining protection to tariffs will not cause protectionist
pressure to disappear, it may create stronger political opposition to
increased protection. It will also make it easier to negotiate mutual
reductions in trade barriers. Paradoxically, this policy may imply, as
some have suggested, that laws should be modified to make it easier
for firms to obtain temporary protection under escape clause criteria
so that the pressure for resorting to nontariff measures is reduced.
TEXTILES AND AGRICULTURE—CASE STUDIES IN PROTECTION

Textiles and agriculture are two of the most heavily protected sectors in virtually all industrialized countries. No doubt part of the explanation is historical, given the importance of these sectors in the
industrialization process. Yet implicit and explicit support and protection have been provided for protracted periods of time, with program costs far in excess of costs associated with most other forms of
government intervention. Industrial country protection is significant
not only for the costs imposed on domestic consumers, but also for
the burden placed on developing economies.
Textiles and Apparel

Protection has been the rule rather than the exception in these industries. During the 19th century the U.S. industry developed behind
high tariff walls. During the interwar period, the Great Depression
and increased competition from Japan led to increased protection.
Many industrial countries resorted to quotas; in 1930 the United
States raised tariffs to 60 percent on woolens and 46 percent on cottons. In 1936 Japan and the United States reached an agreement to
restrict Japanese exports, setting a precedent for the "voluntary" restraints of the postwar period.
Postwar liberalization of the industrial world's trade did not extend
fully to Japan. Although Japan entered GATT in 1955, many countries continued to restrict textile imports from that country under Article XXXV, an annex specifically allowing nonapplication of GATT
provisions to new members. The inaccessibility of the European
market diverted additional exports to the United States. In 1956 the
Congress authorized negotiations to limit textile imports. The following year Japan again agreed "voluntarily" to limit exports to this
country.




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This limit on Japanese exports led to increased U.S. imports from
other countries, notably Hong Kong, whose 1960 exports to the
United States surpassed Japanese levels. In response, GATT adopted
the "Decision on the Avoidance of Market Disruption," which allowed restrictions on a discriminatory basis, even if actual injury had
not occurred. This decision became the basis for the ensuing Short
Term Arrangement (1961) and the more comprehensive Long Term
Arrangement (1962).
But the Long Term Arrangement did not stem domestic protectionist pressures. From 1961 to 1972 textile imports increased by 135
percent in real terms, while apparel imports soared by well over 400
percent, with much of the growth in man-made fiber products not
covered under the Long Term Arrangement. In response, the United
States negotiated several bilateral agreements restricting imports of
products made from wool or man-made fibers. The Multi-Fiber Arrangement, negotiated in 1973 and implemented in 1974, legitimized
these bilateral agreements and provided a framework for negotiating
additional bilateral export restraints. Subsequent Multi-Fiber Arrangements have extended the material, product, and country coverage, so that roughly 60 percent of world trade in textiles and apparel
is now restricted, the main exception being trade among the industrial countries (excluding Japan). Recent agreements have added a
"call" provision that allows the United States unilaterally to restrict
products not previously covered under the agreements in response to
an import surge. The current agreement, Multi-Fiber Arrangement
IV, is scheduled to expire in 1991.
While the nominal tariff rates on textiles and on apparel average
around 10 percent and 20 percent, respectively, the combined protection afforded by tariff and nontariff barriers is nearly 30 percent
for textiles and more than 50 percent for apparel. The annual estimated cost to U.S. consumers of the protection exceeds $20 billion.
Furthermore, world restrictions on trade in textiles and apparel
impose an enormous burden on developing economies. These products account for 80 percent of Jamaica's manufactured exports, 72
percent of Pakistan's exports, and 89 percent of all exports from
Bangladesh (100 percent of its manufactured exports). The restrictions limit exports to the main developed economies and divert sales
to other importers. Some exporting nations allocate export quotas to
Multi-Fiber Arrangement countries among domestic producers based
upon those firms' exports to non-Multi-Fiber Arrangement importers. This method of allocating quotas leads to overshipments to these
latter importers, exacerbating the pressure for additional worldwide
protection.




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The combined textiles and apparel sector remains one of the largest manufacturing sectors in the United States, employing more than
1.8 million workers. Over the past 25 years labor productivity in the
textile industry has grown by more than 4 percent per year, above
the national average, while productivity in apparel has grown by an
average of 2.8 percent since 1973. Employment declined through
1986, partly because of productivity increases. In 1987 and the first
half of 1988 employment stabilized in apparel, and grew in textiles.
In real terms, domestic textile production has increased by more
than 140 percent since 1960, while apparel production has increased
by more than 60 percent. Profits rose in 1987 and the first half of
1988.
Yet the pressure to protect continues. In recent years the Administration has repeatedly had to fight even more protectionist legislation, using vetos that were sustained in 1985 and 1988. This case is
clearly not one of temporary protection to allow adjustment, and the
protection cannot be justified under any escape clause criteria. The
question is whether tariffication could help reduce this pressure, because the social costs of this protectionist policy remain high.
Agriculture

Agriculture, like textiles, is an important industry whose relative
economic significance has waned. Employment in American farming,
now just over 3 million, has declined both in absolute and relative
terms in the postwar period. Similarly, the value of agricultural
output as a share of GNP has declined sharply during this period.
Agriculture has maintained an important, although declining, share
of total U.S. merchandise exports. Exports remain crucial to the vitality of the agricultural sector.
For the world as a whole, output of agricultural products has
grown by about 150 percent over the period 1950-86, in contrast
with the nearly 600 percent increase in manufactures. Although the
volume of world trade in agriculture has increased more rapidly than
agricultural output, the relative share of agriculture in world trade
has declined from nearly 50 percent in 1950 to less than 15 percent
in 1986.
The economic and political importance of this sector is apparent
from the types of support programs that most developed economies
maintain. Unlike textile programs, those in agriculture have involved
both domestic and border measures, and have not only affected the
volume of trade, but in several cases also actually reversed trade patterns. In terms of their impact on both taxpayers and consumers,
these policies have tended to become more costly. One estimate indicates that the cost of farm policies to taxpayers and consumers in the
OECD countries was about $200 billion in 1986.




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The United States began using price supports and land diversion
programs to increase farm family incomes before World War II.
These programs continued to evolve after the war. However, relatively high market prices during the 1970s for the major crops covered
by these support programs reduced the cost of farm programs to taxpayers. Program changes made in 1981 and 1985, however, combined with relatively low market prices to cause unprecedented
budget outlays as well as record nominal net farm incomes. As measured in 1982 dollars, the total taxpayer cost of farm programs, which
varies with market conditions, increased from under $4 billion in the
early 1950s to more than $20 billion in the mid-1980s.
Because U.S. programs typically involve price supports or deficiency payments, and because the United States is a major exporter of
many agricultural products, border measures are not usually needed
to keep out foreign products. In some products, such as dairy, sugar,
beef, and peanuts, the United States does maintain quantitative barriers on imports to support domestic producer prices. Apart from the
dairy program, these other programs impose little direct burden on
taxpayers, but they do result in significantly higher consumer prices.
Under the domestic sugar program, for example, import quotas are
adjusted annually to achieve a high domestic price. While both the
protective effect and costs of the program depend upon the world
price and the domestic stabilization price, current protection levels
exceed 100 percent, and the estimated annual consumer costs for
1987 exceeded $3 billion. The use of export quotas rather than tariffs,
and the allocation of these quotas to specific foreign exporters,
resulted in a transfer to these exporters of nearly $300 million,
reflecting the difference between U.S. and world prices. The additional
revenue to domestic producers for 1987 was about $1.7 billion. These
benefits are highly concentrated among producers, resulting in an
average transfer to sugar growers of $50,000 to $100,000 per farm.
Regardless of the crop or the country, government programs significantly benefit farmers in developed countries. As documented in
the 1988 Economic Report of the President, the producer subsidy equivalent, which measures the estimated percentage decrease in gross farm
income that would occur if all of a country's internal and border
measures were removed, increased sharply for the United States,
from 11 percent in 1979 to 34 percent in 1986. However, U.S. farmers would benefit if all nations were gradually to remove their distortionary agricultural policies, as the President has proposed as part of
the Uruguay Round negotiations.
The Common Agricultural Policy of the EC entails high producer
prices and a variable levy on imports that keeps European consumer
prices well above world prices. This subsidy program has trans-




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formed the EC from a grain importer to a surplus producer. To dispose of these surplus stocks, the EC adds an additional subsidy to
promote its exports. In the 1987 budget year the EC received about
$1.9 billion from import levies, and paid out $10.8 billion for export
subsidies. These export subsidies increased significantly during the
preceding decade. While benefiting importers, the subsidies create
conflicts with other agricultural exporters, including the United
States and producers in developing countries. The total budget of
the Common Agricultural Policy was about $27 billion in 1987, and
represented about 64 percent of the Community's total budget.
Japan remains a major agricultural importer despite the fact that its
agricultural protection remains among the highest for developed
countries. Estimated ad valorem tariff equivalents for many agricultural products, including rice, wheat, barley, sugar, and beef, were all
above 100 percent in the middle 1980s. Domestic rice prices currently exceed five times world prices. As shown in the 1988 Economic
Report, Japan's producer subsidy equivalent of 79 percent is well
above that of any other major industrial country, and this rate had
increased significantly in less than a decade. These programs result
not only in taxpayer costs, but in higher prices for Japanese consumers, who spend a considerably larger percent of their income on food
products than do consumers in the United States. These barriers
remain because Japanese farmers are a politically potent group, and
they have vigorously opposed liberalization attempts.
As with textiles, many of these agricultural programs are outside of
GATT discipline, largely because of U.S. desires in the early years of
GATT. The high degree of protection and subsidization in agriculture has led to significant international tension. This tension, and the
massive distortion that results from these policies, constitute a major
impetus behind the sweeping U.S. proposal in the Uruguay Round to
eliminate all market-distorting agricultural policies. Moreover, a large
portion of U.S. market-opening activities is directed toward agricultural products. These and other market-opening activities are the
subject of the next section.
FREE AND FAIR TRADE
In the early postwar period the United States was prepared to
accept the fact that its trading partners used nontariff barriers more
than it did, because the primary U.S. aim was to foster recovery overseas. As recovery proceeded and the income gap decreased, however,
Americans came to think that the responsibility for fostering trade
liberalization should be shared more equitably.




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Domestic protectionist sentiment has increased during the past two
decades. Recently, U.S. exporters have sought relief from foreign
practices that were perceived to treat their products unfairly. This
sense of unfairness was exacerbated by declining U.S. agricultural exports, and the increasing importance of services and intellectual
property rights, neither of which was protected under GATT discipline.
Despite this adverse political climate, this Administration has managed to sidetrack some major pieces of protectionist legislation. Political pressure was adroitly diverted toward an effort to open foreign
markets to American products through the use of Section 301 of the
Trade Act of 1974. The spirit of this provision is to help the government carry out its legitimate roles in fostering and maintaining a free
and fair trading system. Implementation of the provisions raises
some complex issues, however, especially when international agreements do not cover the alleged unfair foreign practices.
Under Section 301, as amended, the United States Trade Representative is authorized, subject to Presidential direction, to take
specific actions to obtain the elimination of unfair foreign trade practices. These practices include, but are not limited to, policies that restrict U.S. exports to that country, that undermine U.S. export markets, and that deny American residents the protection of intellectual
property rights. Although the ultimate sanction available to the
United States under the statute is retaliation, the purpose of the
process is to obtain successful resolution of the conflict, not to close
American markets. In fact, few of the cases brought under this Administration have resulted in retaliatory tariffs.
If the unfair practice violates GATT obligations, then the usual dispute settlement mechanism of GATT can be used. The usefulness of
Section 301 action derives from the weakness of GATT's dispute settlement procedures, and its limited coverage.
SECTION 301 IN PRACTICE

Since Section 301 was passed in 1974, about 70 cases have arisen,
nearly 50 during this Administration. More than 20 cases have been
initiated since 1985, 10 of which were initiated by the Administration
without a private petitioner. Nearly one-half of the petitions have
dealt with raw and processed agricultural products, including grains,
beverages, leather, and tobacco products. The other major sources of
petitions include eight filed by steel producers, nine involving service
industries (such as insurance and films), four filed by footwear producers, and several recently filed by the Pharmaceutical Manufacturers Association involving intellectual property rights. The basis of
many of these petitions mirrors the weakness in GATT disciplines in




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agriculture, and the lack of coverage for intellectual property rights
and services.
The Section 301 process of market-opening has resulted in important agreements. The Japan beef and citrus agreement, which was negotiated under the threat of imminent Section 301 action, has been
mentioned. Under earlier Section 301 actions the Japanese agreed to
lower tariffs and end the state monopoly's discriminatory treatment
of imported tobacco products. Separately they also agreed to reduce
some tariffs, on a most-favored-nation basis, to compensate for
GATT-illegal leather and leather footwear import quotas. Agreements with South Korea include one that increased foreign access to
the domestic insurance industry, another that resulted in sweeping
modifications of Korea's laws and regulations concerning intellectual
property, and a third liberalizing the Korean market for imported
cigarettes.
The emphasis on market-opening in the trade law has facilitated
the conclusion of bilateral agreements even without Section 301
action. Examples include agreements with Japan to increase access to
their domestic construction industry, to modify the procedures for
government procurement of supercomputers, and to allow foreign attorneys to practice their home law in Japan. Partly because of U.S.
pressure, both South Korea and Taiwan significantly reduced their
tariff barriers, and Taiwan improved its intellectual property rights
protection. In a recent case, U.S. petitioners voluntarily withdrew
their petition against South Korea after an agreement was announced
to open that country's film market significantly.
Attempts to define unfair trade practices, for the purposes of Section 301-type actions by any country, can raise complex issues. A
country might, for example, undertake deregulation or privatization
measures for purely domestic reasons. Nevertheless, these measures
are likely to confer benefits on some foreign firms, particularly because government procurement processes are typically less open than
private procurement procedures. Should the liberalized country be
entitled to compensatory trade liberalization from others for its
policy? This issue is unresolved and is a potential source of friction.
Another issue concerns the extent to which any government intervention in the economy is deemed to be unfair. The United States
typically has more of a laissez-faire attitude toward economic development than other countries, particularly—but not exclusively—those in
the developing world. Many of these latter countries practice active
government intervention. This intervention may include subsidies to
specific domestic industries, which necessarily distort trade patterns,
or regional subsidies. While the latter subsidies can be trade neutral
in an overall sense, nevertheless they are likely to hurt some (and




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help other) U.S. industries. The law is unclear as to whether such regional subsidies are unfair.
In pursuing action under Section 301 other complex problems
arise. Petitioning firms want to use the process to their advantage,
which sometimes means they are more interested in obtaining domestic protection from foreign competition than in opening foreign
markets. Such efforts must be resisted. At times the executive branch
may find itself under pressure from a domestic industry to pursue
Section 301 action against a foreign practice that harms one U.S. industry but actually benefits the country as a whole. For example, if a
foreign country taxes exports of a primary product, this policy will
discourage domestic production and exports of that primary product,
but will encourage exports of processed goods derived from it.
American firms that produce the processed product will be hurt, but
U.S. producers of the primary product will benefit. If the processors
initiate a Section 301 action, should the United States attempt to
eliminate this foreign policy because it is "unfair" and burdens U.S.
processors, even though the policy's overall impact on the U.S. economy may be beneficial?
In some cases tangible evidence of discrimination against U.S.
products may be difficult to obtain. In the Japan semiconductor case,
an agreement was reached to end Japanese dumping of semiconductors in the United States and third-country markets and to increase
access for foreign firms in the Japanese market, A subsequent sharp
increase in prices raised costs for industries using semiconductors as
inputs, thereby weakening the competitiveness of these high-tech
firms. Tangible evidence of Japanese discrimination against U.S.
firms was hard to document. The criteria used for gauging market
access was the U.S. share of the Japanese semiconductor market. Because this share has not increased sufficiently, the United States has
put 100 percent tariffs on $165 million worth of selected Japanese
products. This is one of the relatively few such retaliatory tariffs that
have resulted from this Administration's market-opening trade policy.
RECENT MODIFICATIONS IN THE LAW

Several sections of the Omnibus Trade and Competitiveness Act of
1988 dictate significant changes in the U.S. campaign against unfair
trade practices. Mandatory action is now required, subject to a limited number of exceptions, if the foreign practice is found to violate a
trade agreement or to be unjustifiable and a burden to U.S. commerce. The removal of discretion is likely to lead to more frequent
resort to retaliation. Moreover, this provision may make it harder for
the United States to obtain agreements from foreign countries to
modify their practices. Under U.S. law, countries that agree to under-




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take measures to eliminate practices that previously were not subject
to mandatory action will be deemed to have entered into a trade
agreement and henceforth be subject to mandatory retaliation if the
proposed changes are not fully implemented. This modification in
the law may reduce the incentive for countries to agree to alter their
policies.
Other sections of the law require the U.S. Government to self-initiate Section 301 investigations and to name specific countries as
"unfair traders/* Section 1302 of the 1988 act requires the identification of priority foreign practices, the elimination of which would have
the most benefit for U.S. commerce, and of priority countries that
undertake such practices. Section 1302 also purports to require the
United States Trade Representative to enter into negotiations with
these countries in order to obtain agreements to remove the barriers.
In essence, this provision requires the government to indict a country^ entire set of trade practices, not one specific aspect of its policies.
The telecommunications section of the 1988 act requires the government to investigate foreign country practices in telecommunications and decide which are most offensive, as well as which would
reap the most commercial benefit for the United States upon modification. If agreements to modify them cannot be reached, the law authorizes the President to retaliate. It also directs the President, if he
does take retaliatory action, to target telecommunications trade. It
will be a challenge to implement these procedures in a way that
opens foreign markets, instead of causing the United States to close
domestic ones.
AGENDA FOR THE FUTURE
The future of the international trading system, and the way in
which modifications to it are negotiated, are arguably at a crossroad.
The GATT system has functioned remarkably well during the past 40
years by all but eliminating tariffs on manufactured products as a
major trade impediment, but it has been far less successful in limiting
other obstacles to trade. The increased reliance on nontariff measures makes further progress more difficult, notwithstanding the limited success achieved in the Tokyo Round. Expanding GATT's coverage to include important omissions, including agriculture, services,
and intellectual property rights, is complex because it may require
basic modifications in domestic law or policy, not just in international
conventions.
The multilateral negotiating process is complicated by the increase
in the number of important participants, and the consequent tenden-




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cy toward bilateral or plurilateral liberalization outside GATT. While
the United States, Canada, the European Community, and Japan
remain the most important trading nations, the share of world trade
in manufactures controlled by the middle-income developing countries has tripled, from 5.0 percent in 1965 to 15.3 percent in 1983.
Individual concessions by these nations on issues such as intellectual
property rights, trade-related investment measures, or trade in services are less important to the larger nations than are collective concessions. In multilateral negotiations, a free-rider problem arises because smaller nations, hoping to gain from the final package, which
will be applied on a most-favored-nation basis, have less incentive to
make individual concessions. This problem explains the tendency for
supplemental codes to GATT to be applied only to signatories, and
not to all GATT members.
The tendency toward bilateralism is evident in a variety of ways,
none of which is necessarily a negative factor by itself. Bilateral
agreements negotiated by the United States under Section 301, while
applied on a most-favored-nation basis, nevertheless clearly have the
intent of removing those trade barriers most significant to this country. The Israel-United States Free-Trade Agreement, which came into
effect in 1985, has already significantly liberalized trade between the
two countries. As of January 1, 1989, Israel will have eliminated
duties on 80 percent of its imports from the United States. In 1987
the United States and Mexico concluded a bilateral understanding
that provides a framework of principles and a consultative mechanism
to improve economic relations. This understanding, in conjunction
with trade liberalization programs Mexico has undertaken as part of
its accession to GATT in 1986, should enhance trade flows between
the two countries. The Canada-United States Free-Trade Agreement,
which enters into effect this year, creates the world's largest freetrade area. The simultaneous reduction of U.S. and Canadian tariffs
and some nontariff measures will expand trade between the two nations, and both will undoubtedly gain. Because the benefits of the
agreement are not conferred on a most-favored-nation basis, however, other countries may not necessarily share in this gain, as some
trade is diverted away from them. These bilateral agreements will be
especially beneficial if they foster further multilateral liberalization.
Whether bilateral or multilateral liberalization will prevail depends
significantly on two major events: the outcome of the EC integration,
scheduled to be completed by 1992, and the outcome of the Uruguay
Round GATT negotiations, scheduled to end in 1990.




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"EC 1992"--THE SINGLE INTERNAL MARKET IN EUROPE

In 1985 the member states of the European Community undertook
to eliminate all remaining economic barriers between them by 1992.
Since the late 1960s the EC has been operating as a customs union
with a common external tariff and no internal tariffs. Yet various
nontariff barriers remain, including, for example, technical requirements that differ among member states (for instance safety standards
on machinery and health standards on agricultural products) and
public procurement practices that discriminate in favor of domestic
suppliers. Despite the absence of tariffs, cumbersome customs procedures are required because member states have different value-added
and excise tax systems, The internal market reforms are intended to
eliminate or substantially reduce barriers by harmonizing tax rates,
eliminating restrictive technical standards, liberalizing financial sector
regulations, and enforcing intra-European competitive bidding in
public procurement.
To many in Europe this liberalizing process represents the logical
next step in consolidating the economic advantages of the customs
union framework. Substantial gains are expected from the realization
of scale economies, once technical standards are uniform across this
large market, which now spans 12 countries. Financial service integration is expected to lower the cost of capital to investors, and efficiency gains are expected from more fully competitive bidding on the
sizable government procurement market, from tax harmonization,
and from the elimination of administrative and time costs of customs
arrangements. A study done for the Commission of the EC, which
has been planning the directives for the changes, puts the expected
contribution to baseline GDP in Europe at 4.5 percent over the
medium term, and to employment of almost 2 million new jobs. For
an economic bloc that has been slow to recover from the stagflation
of the 1970s and the recession in the early 1980s, a potential economic boost of this sort could provide sufficient incentive for governments to overcome domestic resistance to these reforms.
For the U.S. economy the EC 1992 reforms offer potential benefits, in addition to possible barriers alluded to in American businesses' fear of a Fortress Europe. The effects will be felt in two distinct
ways: through American trade with Europe, and through American
investment on the continent. As a trading partner, the United States
and other countries outside the EC may lose to the extent that the
easier movement of goods within Europe encourages more internal
trade, and puts outsiders at a relative disadvantage. If the reforms do
result in substantial European growth, however, this growth may increase the amount of the Community's external trade, including U.S.




181

exports to Europe. These gains will only be realized, however, if the
EC remains open to the rest of the world.
The issues differ somewhat for the United States as an investor. As
long as American firms located in Europe are granted "national
treatment," that is, the same rights of market access as European
firms, their gains from the increased efficiency of an expanded single
market are the same as for their European counterparts. This issue is
of considerable concern to the United States because the Europeans
are considering a reciprocity standard for granting third-country financial institutions access to the newly integrated financial market.
Under strict reciprocity the EC could deny entry to American firms
as U.S. laws in the financial sector are not equivalent to those of the
EC. Consequently, U.S. firms not already established in Europe
would not benefit from the reforms.
URUGUAY ROUND NEGOTIATIONS

At the United States* urging, the eighth round of GATT negotiations was launched in Punta del Este, Uruguay, in September 1986.
The work was divided into two main parts, a Group of Negotiations
on Goods and a Group of Negotiations on Services. Actual negotiations began in February 1987.
While all negotiating areas are important to the United States, the
main U.S. objectives are to correct the weaknesses in GATT coverage
and discipline. The responsibility of the Group of Negotiations on
Services is to establish principles for extending GATT coverage to
trade in this expanding component of world output. The group must
also negotiate sector coverage and establish basic rules on issues
such as transparency, nondiscrimination, national treatment, and
rights of establishment. Because trade in services often requires at
least some local production, the right of foreign firms to establish
local operations is crucial. Possible sectoral coverage includes areas
such as insurance, construction, advertising, telecommunication services, leasing and franchising, and computer and data processing. Liberalized trade in these areas can offer significant gains to American
firms.
The Group of Negotiations on Goods is split into many smaller
groups covering agriculture, trade-related intellectual property rights,
trade-related investment measures, tariffs, and nontariff measures,
among others. The United States made its most dramatic proposal in
agriculture, where the long-term U.S. objective is to eliminate all
policies that distort world agricultural production, trade, and prices.
This sweeping proposal includes both domestic and border measures. To increase transparency and facilitate systematic liberalization,
the United States has proposed tariffication of many of the nontariff




182

measures that are so important in agricultural programs. Successful
implementation of U.S. proposals would lead to large gains in economic efficiency, and reduce the high financial cost of farm programs
at home and abroad. While all nations have agreed to the principle
of increasing GATT discipline over agricultural policy, including internal and border measures, major players such as Japan and the EC
will need to be convinced of the desirability of the full-scale liberalization that the United States and smaller exporting nations are promoting. At the same time, comparable liberalization of trade in tropical agricultural products is of prime importance to developing economies.
Another prime U.S. concern is reflected in the group on intellectual property, where, in conjunction with other developed countries,
the United States is attempting to develop a framework to enhance
intellectual property rights protection. Suggested areas for coverage
include patents, copyrights, trademarks, trade secrets, and semiconductor layouts. The absence of appropriate protection in these areas
is estimated to cost the United States more than $20 billion per year
in lost sales. Insufficient protection of intellectual property leads to
underinvestment in research and development activities. Although
less developed countries wish to concentrate the negotiations only on
border measures, proper protection must also include internal measures and enforcement to prevent the misappropriation of intellectual
property for domestic production.
In light of the substantial past achievements in tariff reductions,
this issue is not as important as in previous rounds. Other groups,
including those on safeguards, nontariff measures, textiles, subsidies,
and GATT Articles, are striving to develop formulations for limiting
the greater problem of nontariff measures. As in agriculture, tariffication of "hard-core" nontariff measures could be a first step toward
their elimination. Many less developed countries wish to liberalize
textile trade, and to reduce the ability of industrial economies to use
safeguard, antidumping, and countervailing duty actions to protect
domestic industries. On the other hand, the United States seeks
greater discipline on the use of trade-distorting subsidies. Developing
countries also wish to require that safeguard actions be imposed on a
most-favored-nation basis. At the same time, they seek special and
differential treatment concerning reciprocal tariff reductions, and
their "right" to protect domestic industries. The developed economies thus far have not offered significant proposals to reduce the use
of grey-area measures of protection.
Direct international investment, like international trade, is an important component in expanding world output and efficiency. Policies that inhibit or distort those flows reduce world efficiency. Many




183

developing countries tie performance requirements to direct foreign
investment. These requirements, which include technology transfer,
local equity participation, minimum export levels, and balanced
trade, both discourage investment and distort trade flows. Developing countries have resisted progress in this group on sovereignty
grounds.
Broadening GATT coverage will be meaningless unless ways are
found to enhance compliance with GATT principles. An improved
dispute settlement process is an indispensable requirement to enhance reliance on GATT principles and procedures. Main proposals
include the automatic right to a panel to settle disputes, the possibility of binding arbitration if both parties consent, an expedited panel
process, and perhaps the adoption of a procedure whereby parties to
the dispute abstain from voting. The possibility of having a strong
dispute settlement process is doubtful as long as countries maintain
their rights to act unilaterally, and ignore GATT reports.
A ministerial level Mid-term Review of progress in the Uruguay
Round took place in Montreal in early December 1988. In 11 of the
15 groups this review resulted in agreement on proposals to be implemented or on frameworks for further negotiations for the remainder of the talks. From the U.S. perspective some of the most important progress occurred in the groups on services, dispute settlement,
subsidies, tariffs, and functioning of the GATT system (FOGS). In
four groups—agriculture, intellectual property, safeguards, and textiles—disagreements remained, although some progress was made in
Montreal in narrowing these differences. Negotiations in these four
groups will continue, and a senior officials level meeting of the Trade
Negotiations Committee is scheduled to meet in Geneva in April
1989. Once agreement is reached in these four areas, the results
achieved in Montreal can be implemented. The changes in FOGS
and dispute settlement will be implemented on a provisional basis.
Most GATT members anticipate that the talks will be successfully
completed, on schedule, by the end of 1990.
The record of the past 40 years clearly demonstrates that economies that have utilized free market principles have been at the forefront of economic growth. The significant reduction in trade barriers
and the ensuing increase in international trade flows have been
major factors in the record growth during this period. Current U.S.
proposals to phase out distortive agricultural policies, to expand
trade liberalization to sectors not previously covered, and to
strengthen GATT manifest the United States' desire to help construct a world trading system that is open to, and benefits, all nations. The guiding principle that government interference with international commerce should be kept to a minimum is equally applica-




184

ble to internal commerce. Freeing the economy from excessive regulation allows entrepreneurs to focus on innovation, the hallmark of
the American economy. Continued efforts to liberalize trade, and to
reduce internal regulation, will ensure America's role as a model for
the rest of the world.




185




CHAPTER 5

Rethinking Regulation
GOVERNMENT REGULATION can have a dramatic effect on
economic growth and productivity. Strong economic growth can be
expected when governments promote markets by enforcing property
rights and encouraging commerce. On the other hand, poor economic performance usually results when governments play an active role
in regulating prices and output. The U.S. Government has tended to
leave most pricing and output decisions in the hands of the private
sector. As the United States becomes a wealthier country, however,
demands increase for regulating marketplace activities that affect environmental quality, health, and safety. It is critical that the Nation
meet these challenges by designing regulatory institutions that facilitate innovation and foster competition.
Regulation of economic activity is hardly a new phenomenon. Over
the past century, Federal, State, and local governments have played
an increasingly important role in regulating the lives of individuals
and the activities of business. The average consumer need not venture beyond the home to see the extent of regulation. There are labeling requirements for food and appliances, standards for the paint
in the living room, pollution control requirements and energy standards for the car, standards for gas and portable electric heating systems, and safety requirements for bicycles. Today regulation is so
pervasive that it is difficult to imagine a world in which Federal regulation was not a dominant force. Currently more than 100 Federal
agencies are responsible for administering a staggering array of regulations.
Much regulation is motivated by a perception that the marketplace
does not adequately address a particular economic or social problem.
For example, child labor laws help prevent the exploitation of children. Environmental legislation tries to improve the quality of the air
people breathe and the water they drink. Safety legislation to protect
coal miners was enacted to help reduce on-the-job injuries. In other
cases, legislation was introduced to limit what was viewed as potentially "destructive competition," or to help save a cherished institution, such as the family farm. While many of these regulations had
beneficial effects, they were not without their costs.




187

The success of regulatory programs can be measured by quantifying the costs and benefits of regulation. Regulatory costs imposed on
the economy have been estimated to be in the neighborhood of $100
billion annually. The benefits of regulation are more difficult to
measure, but nonetheless are real, particularly for programs designed
to promote environmental quality, health, and safety. Critics say that
the costs are too high, arguing that regulation tends to favor special
interests and is generally inefficient. Proponents of an increased government role in the marketplace point to the myriad of social, environmental, and economic problems that have not been adequately
addressed.
To move beyond such general debates, it is necessary to examine
the economic and social impacts of specific regulations and policies.
Such analysis reveals that some regulatory activities have led to unambiguous increases in consumer welfare, but that many regulations
have had a neutral or adverse effect on consumers. Examples of regulations that have had significant adverse economic impacts on the
general public include wage and price controls, regulations on interstate trucking and railroads, and regulations on ocean shipping. Although there are notable exceptions, such as the abolition of the
Civil Aeronautics Board (CAB) and the breakup of the American
Telephone & Telegraph Company (AT&T), changes in the regulatory environment have often favored special interests at the expense
of the general public.
There are signs, however, that some important aspects of the regulatory process are undergoing a fundamental reexamination. Over
the past two decades, numerous reforms have been aimed at deregulating or partially deregulating several industries. The transportation
industries, most notably trucking, railroad, and air transport, have experienced tremendous gains as a result of deregulation. One study
estimates that the benefits of trucking deregulation are between $39
billion and $63 billion annually, while another estimates the benefits
of airline deregulation at $15 billion per year. A third study found
that the partial deregulation of railroads has led to efficiency gains of
between $9 billion and $15 billion annually. These gains, which have
largely occurred in the 1980s and have helped produce the improved
economic performance of the past 6 years, have translated into lower
prices and a wider range of services for consumers. Where increased
competition has been promoted in other sectors, a similar story
emerges. The widespread introduction of money-market accounts
that followed reduced financial industry regulation has allowed consumers to obtain a higher return on their savings. The introduction
of increased pricing flexibility for stock commissions has helped to
promote a booming discount brokerage industry. The relaxation of




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the restrictions on overnight mail delivery has led to dramatic increases in the provision of next-day-delivery services by private companies.
The movement toward deregulation represents one kind of regulatory innovation. More recently, other efficiency-enhancing innovations in the regulatory process, although not completely removing
regulation, have been aimed at fostering greater innovation in the
marketplace. For example, the U.S. Environmental Protection Agency
(EPA) has pioneered the development of market-based approaches
designed to achieve a given level of environmental quality at lower
cost. These approaches have resulted in cost savings in the billions of
dollars over the past decade.
Another area undergoing a great deal of change is the regulation
of public utilities, such as phone companies, gas companies, and electric utilities. In many cases the fundamental rationale for public utility regulation has been called into question. The general thrust of
these changes is to develop institutions that encourage firms to operate more efficiently. Thus, where new electric generating capacity is
needed, for example, some state public utility commissions now
encourage competitive bidding for constructing new generating capacity. Formerly, a single company that served the area was given a
monopoly over the right to build new capacity. In some cases States
are also allowing utilities to provide economic incentives for energy
conservation as an alternative to building additional capacity.
The reasons for the evolution of the regulatory process are complex and only partially understood. In contrast, the relationship between the adoption of a particular regulatory approach and the resulting economic performance is fairly well understood. On the
whole, greater reliance on market forces has led to a more efficient
industry structure and large gains for consumers. The result of
deregulatory efforts and efficiency-enhancing regulatory innovations
has been to increase the overall size of the economic pie, and to
make the average citizen better off. A critical element in promoting
U.S. competitiveness in the years to come will be the implementation
of regulatory strategies that encourage competition and innovation.
This chapter provides a selective review of regulatory activity, highlighting those aspects of Federal regulatory policy where exciting reforms are taking place. It also points out some areas, such as the
banking industry, where additional reform is needed. The analysis
demonstrates how the regulatory environment in which firms operate
can have a dramatic effect on the performance of particular industries as well as the overall economy. In addition, it suggests how
some fresh approaches to regulatory design can foster economic
growth and promote technological change in the decades ahead.




189

REGULATION: AN OVERVIEW
Economists have identified two broad classes of regulation. The
first, sometimes referred to as "economic regulation," usually covers
the regulation of specific industries. This regulation takes three basic
forms. The first places restrictions on the prices a firm can charge or
which firms can enter a particular industry. For example, prior to
1978 airlines needed approval from the Civil Aeronautics Board for
specific routes and fares. Truckers and railroads still have to file rates
with the Interstate Commerce Commission. These transport industries represent a more general category of industries that could operate more efficiently in the absence of price and entry restrictions.
Fortunately, much of this regulation has been removed in recent
years, resulting in lower prices and an expanded menu of services for
consumers.
A second form of economic regulation concerns industries for
which it is less costly to have a single large firm provide a product
than to have several smaller firms provide the product—i.e., so-called
"natural monopolies." Industries thought to have elements of natural
monopoly include local telephone networks and transmission and
distribution systems for electricity and natural gas. For example, it is
sometimes cheaper to build one large natural gas pipeline than several small ones. Some industries with natural monopoly elements, such
as electric utilities, are regulated by Federal and State agencies. The
typical approach of these regulators is to provide limitations on the
overall return on investment that firms are permitted to receive.
A third form of economic regulation, which has often been overlooked in the scholarship on regulation, involves the direct government provision of services. For example, the government provides
mail services through the U.S. Postal Service and prohibits others
from competing for those services. This type of regulation can be
viewed as an extreme form of price and entry regulation where the
government is the sole supplier of certain services.
The second broad class of regulation, referred to as "social regulation," is aimed at tackling problems that are not always adequately
addressed by the marketplace. Examples include health, safety, and
environmental regulation. This regulation is not directly related to
issues of prices and market structure, but rather attempts to address
problems where there is a perceived "market-failure." For example, a
firm may generate too much pollution because it does not include in
its costs the effect of its pollution on others. Unlike much economic
regulation, social regulation is rarely targeted at specific industries.
Although the preceding taxonomy of regulatory activity covers a
lot of ground, it is far from complete. For example, not all economic




190

regulation is targeted at specific industries; minimum-wage laws
clearly represent a form of economic regulation that applies to
almost all industries in one form or another. Similarly, antitrust
policy, whose purpose is to promote competition by placing limitations on different kinds of business conduct and policies, is also an
important form of economic regulation. Despite such drawbacks, the
preceding classification scheme provides a convenient lens through
which to analyze the activities of a wide variety of Federal regulatory
agencies.
RATIONALES AND MOTIVATIONS FOR REGULATION

Many justifications have been offered in defense of regulation.
Economists quite naturally tend to focus on those justifications motivated by potential gains in economic efficiency. The primary efficiency rationale for economic regulation is that of natural monopoly.
However, it is important to recognize that just because, in theory, an
industry consisting of a single regulated firm might be able to sell its
output at a lower cost does not mean that, in practice, it will. Just as
the marketplace may be imperfect in the case of natural monopoly,
so too are the tools at the disposal of government regulators.
The economic rationale for social regulation is that firms or individuals may impose costs or benefits on other individuals that are not
adequately accounted for in the marketplace. Such costs or benefits
are sometimes referred to as "externalities." Examples of externalities include smoke from a factory that contributes to respiratory illness of nearby residents, and the costs an individual might impose on
others by driving while intoxicated. Externalities are often viewed as
examples of market failure. Until recently many economists viewed
market failure as a sufficient rationale for government intervention.
Because it is now widely recognized that government intervention is
not without its pitfalls, however, market failure is seen as a necessary,
but not sufficient, condition for government intervention.
Economists sometimes refer to situations where government intervention results in a less efficient policy as "government failure." Such
failures can arise in cases of both social and economic regulation.
This is because what economists see as reasonable grounds for government intervention and regulation, and what actually happens
when regulations are implemented, are often different. For example,
many firms attempt to use the regulatory process to enhance their
competitive position. Barriers to entering an industry may increase
with the introduction of new regulations, not only increasing profits
for regulated firms, but also yielding a less efficient industry structure. The existence of incentives for firms and individuals to manipulate the political process means that regulatory programs may not be




191

implemented so as to promote economic efficiency; nor is such efficiency necessarily an important criterion for politicians designing
such programs.
Over the past 20 years some economists and political scientists (especially those of the "public choice" school) have attempted to understand what motivates different approaches to regulation. A key insight from this research is that much regulation can be explained by
an interest in redistributing wealth from the general public or taxpayers to special interest groups. The motivations for some social regulation are more difficult to disentangle, but here, too, there is a
strong political element related to the redistribution of wealth. For
example, the legislation requiring scrubbers on power plants appears
to have been motivated as much by the self-interests of environmentalists and high-sulfur coal miners as by a desire to promote cleaner
air.
Notwithstanding the growth in understanding of both the politics
and economics of regulation, some important parts of the puzzle still
defy a simple explanation. Most notable among these is the wave of
deregulatory activities that has taken place over the past two decades.
The fact that many of these activities were characterized by diffuse
benefits for a large group of consumers and concentrated costs for
some well-organized interest groups makes it difficult to explain why
they were adopted.
Several factors appear to have contributed to this dramatic change
in the approach to regulation. First, an outpouring of research on
economic regulation suggested that the costs of regulation were quite
high. Second, some "natural" experiments provided further evidence
that deregulation would result in large benefits. For example, in the
case of airlines almost all intrastate markets were unregulated whereas interstate markets were heavily regulated. A comparison of the
fares between Los Angeles and San Francisco with those between
New York and Washington, D.C. suggested that people in the latter
market were paying much higher fares as a result of regulation.
Third, technological changes in industries such as telecommunications and electric utilities led some firms to lobby for a reduction in
the entry barriers that protected existing firms. Finally, as the social
costs of regulation grew, some politicians may have seen an opportunity to claim national credit by promoting policies that would result
in significant gains for a large group of consumers. Although these
factors help to motivate the movement toward deregulation, they do
not explain why a wave of such activity began in the 1970s; nor do
they explain what is likely to be in store for the future.




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TRENDS IN REGULATION

The scope of regulation has broadened considerably since the first
Federal administrative agency, the Interstate Commerce Commission
(ICC), was established in 1887. The Sherman Antitrust Act became
law in 1890. This was followed by the Federal Trade Commission Act
and the Clayton Act in 1914, which were designed to protect consumers and to regulate competition. The New Deal period witnessed
the creation of several financial regulatory agencies, including the
Federal Deposit Insurance Corporation, the Securities and Exchange
Commission, the Federal Home Loan Bank Board, and the Farm
Credit Administration as well as other regulatory agencies, such as
the Civil Aeronautics Authority (later the CAB) and the Federal
Communications Commission. Prior to 1960 Federal regulation was
primarily aimed at affecting the market structure of specific industries. For example, the Interstate Commerce Commission regulates
the rates of truckers and railroads involved in interstate commerce.
The now defunct Civil Aeronautics Board regulated prices and entry
into various domestic airline markets (discussed in Chapter 6 of the
1988 Report). In short, the focus was on economic regulation.
Although economic regulation was predominant prior to 1960,
some Federal agencies were charged with addressing health and
safety issues during this period. For example, the Food and Drug Act
of 1906 required inspection and labeling of certain foods and drugs.
The Federal Aviation Administration was created in 1958 to help
ensure safe air travel. These agencies have played an important role
in shaping the structure of the industries they regulate.
Since the mid-1960s the focus of new regulatory activity has
changed. While traditional regulation of prices and entry still exists
in some industries, there has been a virtual explosion of social regulation concerned with safety, health, and environmental quality. The
Consumer Product Safety Commission sets safety standards for consumer products from carpets to cribs. The Environmental Protection
Agency develops environmental standards and approves State pollution control plans. The Occupational Safety and Health Administration regulates hazards in the workplace. The growth in this type of
social regulation has led to an increased Federal presence not only in
business activity, but also in the day-to-day activities of the general
public. Indeed, some studies argue that social regulations have led to
a measurable decline in productivity (discussed in Chapter 1).
THE EFFECTS OF REGULATION

The dramatic increase in regulation has been accompanied by an
increase in understanding of the beneficial as well as harmful effects
of this type of government intervention. Regulatory policy has an im-




193

portant effect not only on specific sectors of the economy, such as
transportation and finance, but also on the Nation's ability to compete in the global marketplace. For example, if the United States
chooses to adopt environmental and safety regulations that are more
stringent than those of the rest of the world, it may encourage some
types of industries to move facilities abroad. In other cases social regulation can serve as a form of protectionism. For example, if a foreign manufacturer must meet a complex set of U.S standards, it may
choose not to compete in this market. In this way some pollution and
safety regulations can work to benefit domestic manufacturers, although consumers ultimately must pay higher prices. At the same
time such regulations can yield benefits for consumers in the form of
a cleaner environment and increased safety.
There have been several estimates of the scope of regulatory activity. One measure frequently cited is the increase in the number of
pages in the Federal Register. Unfortunately, this measure is not very
informative because it fails to account for differences in the impact of
regulations as well as changes in the composition of the Federal Register over time. A somewhat more informative measure is given by the
amount of direct Federal outlays for regulatory activity. Chart 5-1
shows how these costs have varied in real terms over the past 19
years. The chart reveals that the administrative costs of social regulation grew rapidly in the 1970s, fell slightly in the early 1980s, and
then began to rise again. Activities associated with economic regulation, which represents only a small fraction of these administrative
costs, have grown slowly over this period. A similar picture emerges
from an analysis of administrative staffing requirements and costs as
a fraction of gross national product.
Of much greater economic interest are the costs that regulation
imposes on industry that are ultimately borne by the public. These
costs are decidedly more difficult to estimate. For example, consider
the problem of measuring the environmental impacts of Federal and
State efforts aimed at reducing air pollution. Information on pollution levels at the time the regulations were implemented is often inadequate. Moreover, even where accurate records are available, it is difficult to isolate the effects of regulation from other economic activity.
While it is likely that the level of sulfur dioxide has decreased since
1970, for example, the result may be attributable as much to economic factors such as increasing energy costs and advancing technology as to regulatory changes.
Despite the methodological difficulties, studies have estimated how
regulation of specific industries affects consumer costs. One recent
estimate of environmental regulations alone put the annual price tag
at more than $75 billion, but made no attempt to measure benefits.




194

Chart 5-1

^^ Federal Outlays for Regulatory Activities

Billions of 1982 dollars
I

I Economic Regulation

^H Social Regulation

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

Fiscal Years
Note.—Data for 1988 are estimates.
Sources: Center for the Study of American Business and Council of Economic Advisers.

Combining the results of other studies shows that Federal health and
safety regulations cost consumers at least $22 billion annually, again
ignoring benefits. For the case of economic regulation, for which
there are seldom any net benefits, the annual costs are estimated to
exceed $18 billion.
THE MOVEMENT TOWARD DEREGULATION

One of the most surprising and noteworthy changes in the regulation of markets has been the movement toward deregulation over the
past two decades. Table 5-1 chronicles the deregulatory initiatives
that have occurred from 1971 through the present. Most of these initiatives have occurred in the area of economic regulation, although a
handful have occurred in social regulation.
The list illustrates the broad range of activities in which markets
and competition have played an increasingly important role. Deregulatory efforts from airlines to cable TV have allowed firms to compete with less government intervention. Although estimates of total
efficiency gains are not available, deregulatory efforts have provided
substantial benefits for both industry and consumers.




195

TABLE 5-1.—Deregulatory Initiatives, 1971-88
Initiative

Year

Specialized common carrier decisions (FCC)
Domestic satellite open skies policy (FCC)
Abolition of fixed brokerage fees (SEC)
Railroad Revitalization and Reform Act
Air Cargo Deregulation Act
Airline Deregulation Act
Natural Gas Policy Act
Standards revocation (OSHA)
Emissions trading policy (EPA)
Deregulation of satellite earth stations (FCC)
Urgent-mail exemption (Postal Service)
Motor Carrier Reform Act
Household Goods Transportation Act
Staggers Rail Act
Depository Institutions Deregulation and Monetary Control Act
International Air Transportation Competition Act
Deregulation of cable television (FCC)
Deregulation of customer premises equipment and enhanced services (FCC)
Decontrol of crude oil and refined petroleum products (Executive order)
Truth-in-lending simplification (FRB)
Automobile industry regulation relief package (NHTSA)
Deregulation of radio (FCC)
Bus Regulatory Reform Act
Garn-St Germain Depository Institutions Act
AT&T settlement
Antitrust merger guidelines
Space commercialization
Cable Television Deregulation Act
Shipping Act
Trading of airport landing rights
Sale of Conrail
Elimination of fairness doctrine (FCC)
Proposed rules on natural gas and electricity (FERC)
Proposed rule on price caps (FCC)

1971..
1972..
1975..
1976..
1977..
1978..

1979..
1980..

1981..

1982..

1984..

1986,
1987..
1988..

Source: Adapted from R. Noll and B. Owen, The Political Economy of Deregulation: Interest Groups in the Regulstory Process and updated
by the Council of Economic Advisers.

THE INTRODUCTION OF EXECUTIVE REGULATORY
OVERSIGHT
When regulation represented only a small part of the "activity" of
the Federal Government, there was no pressing need to coordinate
or evaluate its overall effects. Now that regulation is an important
component of economic policy, the need for coordination has
become obvious. At the most basic level, there is a need to ensure
that regulations do not promote policies that conflict with each other.
Many economists would argue that it is also important to evaluate
regulations in terms of their expected costs and benefits. From an
economic standpoint, a basic problem is that regulatory agencies lack
adequate incentives to take into account the cost of regulations on
affected parties. Consequently, many regulations are designed to
yield short-term political benefits while imposing larger costs on the
public at large over a longer period.




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To address the dramatic increase in regulatory activity beginning
in the late 1960s the past four Presidents have introduced different
oversight mechanisms with varying degrees of success. President
Nixon, in 1971, established a "Quality of Life Review" of selected
regulations. Born out of concern that some of EPA's environmental
regulations were ineffective or too costly, this review process was administered by the Office of Management and Budget (OMB) and required agencies issuing regulations affecting health, safety, and the
environment to coordinate their activities. President Ford formalized
and broadened the review process in Executive Order 11821, which
required that agencies prepare, and OMB review, inflation impact
statements for major rules. In 1978 President Carter modified executive regulatory oversight by issuing Executive Order 12044, which required detailed regulatory analyses of proposed rulemakings and
review by the Executive Office of the President. In addition he established two interagency groups. The Regulatory Analysis Review
Group, made up of representatives from the Executive Office of the
President and regulatory agencies, examined a limited number of
proposed regulations expected to have substantial regulatory impact.
The Regulatory Council, consisting of the heads of 36 Federal regulatory agencies, was asked to publish a Calendar of Federal Regulations,
which summarized major regulations under development and was designed to point out regulatory overlap and to describe the costs and
benefits of the proposed actions.
This Administration further sought to strengthen executive regulatory oversight. Just 2 days after entering office the President announced the formation of his interagency Task Force on Regulatory
Relief to be chaired by the Vice President. The task force became the
clearinghouse for the President's effort to improve the Nation's competitiveness and was used, in the President's words, to "cut away the
thicket of irrational and senseless regulations." Hailed as "one of the
keystones in our program to return the nation to prosperity," the
task force later counted among its achievements expediting the drug
approval process, reducing airborne lead emissions by phasing out
lead in gasoline and encouraging the search for safe alternatives, and
promoting more efficient uses of energy resources.
Three weeks after forming the task force the President issued Executive Order 12291, which authorized the new Office of Information
and Regulatory Affairs (OIRA) within OMB and the task force to
work together to develop more effective and less costly regulations.
The Office of Information and Regulatory Affairs has primary responsibility for implementing Executive Orders 12291 and 12498.
The first of these Executive orders requires cost-benefit analyses for
all major rules. Although OMB could not veto agency rules, it could




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improve the quality of a rule by sending the analysis back to the
agency for reconsideration. The second Executive order requires
annual publication of the Regulatory Program of the United States, which
reviews regulations proposed by agencies for conformance with Administration policy and priorities. The approach of this Administration is unique in both the scope of the regulatory review as well as
the formal inclusion of benefits estimation in the regulatory impact
analyses for major rules.
The potential for executive regulatory oversight to impose discipline on the regulatory process is limited. One reason is that regulatory reform is unlikely to be a high priority for any Administration in
the near future because it is hard to convince the public of the need
to streamline the regulatory process when specific regulations are at
issue. The problem is analogous to that of placing a limit on the
budget or on spending. People recognize that in the aggregate many
regulations may be burdensome, but almost always a vocal interest
group will attempt to block the removal of any single regulation. A
second reason is that program advocates in the Congress oppose the
consequences of such oversight. Indeed, for some laws, such as the
Clean Air Act, the statute clearly states that standards should be set
without regard to costs.
Although the prospects for widespread reform of regulatory procedures are dim, executive regulatory oversight can play a constructive
role in coordinating policies and reducing the burden of some of the
more onerous regulations. Hopefully, this process will continue. The
ability to review rules and to suggest agency reconsideration helps
the Executive Office of the President to ensure that agency regulations are better justified and more consistent with Administration
policy.
ECONOMIC REGULATION: EXTENDING THE BOUNDARIES OF
COMPETITION
Over the past three decades a consensus has emerged among
economists about the usefulness of some types of regulation. It is
generally agreed, for example, that regulation aimed at controlling
prices or entry will lead to inefficiencies in industries where competition can be sustained. Competition is generally viewed as a positive
dynamic force that will encourage innovation and promote economic
growth.
PRICE AND ENTRY REGULATION

The potential for competition in many industries has been enhanced in recent years by dramatic advances in technology, particu-




198

larly in telecommunications, information processing, and financial
services. As a result, price and entry regulation has come under increased scrutiny. In some cases, such as in transportation, substantial
deregulation has occurred. In others, such as banking and securities,
there have been modest moves toward relaxing price and entry barriers, with mixed results. In addition to the piecemeal attempts to
relax economic restrictions in specific industries, a major change has
occurred in the government's treatment of proposed mergers and acquisitions.
The Shift in Antitrust Policy

Antitrust policies limit the type of business agreements firms can
use. For example, one aspect of antitrust policy places restrictions on
price-fixing, because price-fixing is presumed to be anticompetitive.
A second aspect of antitrust policy that has come under increasing
scrutiny in recent years is the review of proposed mergers between
different businesses. A marked shift in antitrust merger policy has
occurred since 1980. While horizontal mergers involving similar companies are still monitored closely when entry barriers and concentration levels are high, the view of vertical mergers has evolved considerably. Vertical relationships, such as those in the petroleum industry
where some firms refine petroleum and also distribute petroleum
products, are viewed with less suspicion. The principal reason for
this change in perspective is that the efficiency-enhancing aspects of
vertical relationships are more widely appreciated. In addition to the
change in thought on vertical restraints, there is also increasing recognition that many U.S. firms now compete in global markets, which
means that the appropriate measure of market size must be enlarged.
Reflecting this change in perspective, the Department of Justice in
1982 adopted new guidelines for determining when it would challenge mergers or acquisitions as anticompetitive. The Federal Trade
Commission at the same time adopted a comparable policy statement. These new guidelines provide a firm conceptual basis for evaluating horizontal and vertical mergers. They also provide more
leeway for vertical mergers. In 1984 the Justice Department issued
revised guidelines that placed even greater weight on competition in
a global setting.
It is too early to assess the economic impacts of changes in the
merger guidelines. However, one effect has been to increase competition in the market for corporate control. Increased competition
should provide greater incentives for managers to run their corporations more efficiently (discussed in Chapter 6 of the 1985 Report).
Another important change in policy, which should complement the
recent merger guidelines, is the National Cooperative Research Act
of 1984. This act was designed to promote greater collaboration on




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basic and applied research among private companies. The act should
encourage domestic firms to engage in cooperative arrangements,
such as research and development. Like the revised merger guidelines, the act is supposed to make it easier for U.S. firms to compete
in a global setting (discussed in Chapter 6).
Banking: The Need for Reform

One of the major challenges for the next Administration will be to
address the critical problems faced by the "banking" industry. A wide
variety of institutions besides banks perform banking functions. Here,
the terms "bank" and "banking institution" will be used to refer to
those depository institutions covered by Federal deposit insurance.
These institutions include savings banks and savings and loan associations (thrifts), credit unions, and commercial banks.
Much of the concern over the health of the banking industry results from the marked increase in bank failures over the past decade.
As shown in Chart 5-2, failures remained high through the end of
the depression, stayed at relatively low levels from 1945-79, and then
rose dramatically. Net outlays for bank failures by the major Federal
deposit insurance agencies reveal a similar pattern after World War
II, but were inconsequential prior to that time.
The sharp rise in failures has placed a major burden on the deposit
insurance systems. The Federal Savings and Loan Insurance Corporation (FSLIC), which provides deposit insurance for savings and
loan associations, has been insolvent since 1986. The Federal Deposit Insurance Corporation (FDIC), which insures commercial banks
and some savings banks, is still solvent, but will run a loss for 1988.
Estimates of the costs to the FSLIC of closing insolvent thrifts have
risen steadily. The Federal Home Loan Bank Board, which regulates
these institutions, now estimates this cost to be in the range of $50
billion. Other estimates range as high as $100 billion, but costs will
vary depending on how soon the problem is addressed. Unless something is done promptly, these costs are expected to climb rapidly.
The problems that many of these institutions have stem from the
incentives provided by banking regulations. For example, thrifts were
designed to hold portfolios that are unbalanced, with a large portion
of assets consisting of long-term, fixed-rate mortgages while liabilities are held in the form of short-term deposits. When long-term
rates exceeded short-term rates, the industry prospered. Problems
arose in the 1970s, however, as a result of inflation and Regulation
Q, which placed ceilings on interest rates for deposits. As the real
rate of return on bank deposits declined, innovations, such as moneymarket funds, attracted funds into nonregulated substitutes for bank
and thrift deposits. The sudden loss in capital bankrupted many
banks and thrifts, and reduced the capital of others.




200

Chart 5-2

Bank and Thrift Failures

Number of failures

280

| Thrifts
I Commercial Banks

240

200
160

120

80

40

k

1934 19 8 1942 1946

1950 1954 1958 1962 1966 1970 1974 1978 1982 1986

Sources: Thrift data from J. Barthetal., Contemporary Policy Issues, Fall 1985,'and J. Barth'and
M. Bradley, paper presented at Federal Reserve Bank of Cleveland, November 3-4,1988. Bank
^-dajaMrom Federal Deposit Insurance Corporation, 1987 Annual Report.

With the sudden loss in capital, some of the defects in the current
system of deposit insurance became apparent. This system, which
currently guarantees about $3 trillion of deposits, has tended to exacerbate the problems faced by the banking industry. The basic problem with the current system of deposit insurance is that it fails to
provide banks with appropriate incentives for risk management when
banks have little or none of their own capital at risk.
Deposit insurance is intended to provide safe investment opportunities for individuals and businesses that desire low-risk investments.
It is also designed to reduce the likelihood of runs on banks. Unfortunately, deposit insurance also dramatically reduces the incentives
for depositors to monitor the financial health of their bank. Many depositors do not pay enough attention to the possibility of large losses
because most, if not all, of their deposits are fully insured. Thus, one
of the most effective mechanisms for curbing the excesses of banking
institutions has been abandoned.
The primary task of monitoring banking institutions falls on shareholders and Federal regulatory agencies. Because the shareholders'




201

interests do not always coincide with those of depositors, the task of
looking out for depositors' interests as well as the general health of
banks is left largely to the regulators. The next Administration will
need to develop constructive ways to reform these regulatory institutions so that the industry can regain its financial health.
From the standpoint of the regulator, effective monitoring is particularly important as the health of a bank deteriorates. As a bank's
net worth declines, it has an even greater incentive to engage in risky
behavior because less of its own capital is at risk. If a bank becomes
insolvent but is still allowed to keep its doors open, it may engage in
highly speculative behavior. If such investments turn out well, the
banks will reap the gains; however, if such investments perform
poorly, the brunt of the adverse consequences will be borne by the
deposit insurance funds and, ultimately, the U.S. taxpayer.
The irony of this situation is that Federal Government policies
have led to this debacle. Deposit insurance initially was limited in
scope; the limit on private savings and loan accounts was set at
$2,500 in 1934. However, deposit insurance has expanded dramatically. For example, in 1980 the Congress increased the ceiling on deposit insurance for individual savings and loan accounts from
$40,000 to $100,000. Two years later, a congressional resolution explicitly affirmed the full faith and credit backing of deposit insurance
funds by the U.S. Government. In addition the effective scope of deposit insurance has expanded. In the event of failures, not only have
accounts under the ceiling been protected, but so have many accounts exceeding $100,000. In some cases other creditors and, in
rare cases, stockholders were also fully or partially protected. In
effect, there has been a secular move in Federal banking toward providing greater coverage for depositors and creditors, particularly in
the case of large bank failures. While this move may have helped to
decrease the likelihood of runs on particular banks, it has also contributed to the decline in the health of the U.S. banking industry.
Unfortunately, Federal agencies have taken other steps that have
exacerbated rather than alleviated the problems with excessive risktaking, partly as a result of congressional pressure. One measure
taken in response to the erosion of bank capital has been to lower
capital standards. This approach was tried in 1986 for institutions
heavily involved in farm and energy investments. The reduction in
capital requirements meant that banking institutions in poor financial
health would have less of their own money at risk when making in. vestments. Given the insurance system, institutions have an increased
incentive to engage in riskier investments, largely at the taxpayer's
expense if things do not work out as anticipated.




202

In addition to allowing troubled banks to have lower capital re*
quirements, regulators have been reluctant to require banks to evaluate their loan portfolios at current market value. Some banking institutions, therefore, appear solvent when, in fact, they are not. While
there may be a short-term payoff to regulators from avoiding taking
action in such cases, there has been a long-term cost to the taxpaying
public. These banks continue to remain in business, and often they
invest in excessively risky assets, thus increasing the exposure of the
deposit insurers.
As problems with insolvency have grown, the agencies have responded by attempting to reduce their out-of-pocket costs. In some
cases insurers have allowed banks with financial problems to bid on
other troubled banks. In other cases the insurers have entered into
long-term agreements with purchasers of failed thrifts that protect
the new owner from any losses on the acquired portfolio for up to 10
years. By weakening incentives for efficient management, such actions are likely to raise insurance costs in the long run.
Most regulatory actions taken so far merely serve to postpone the
problem. Postponing the day of reckoning will sharply increase costs
to the general public. The current regulatory strategy also makes life
much more difficult for healthy institutions. By allowing banking institutions that are engaged in excessive risk-taking to remain in business, the healthy thrifts covered by the FSLIC are forced to pay
higher insurance premiums to pay for the cost of those thrifts that
are failing or have failed.
The lessons from past mistakes can be used to develop a more
constructive approach to restoring the health of the banking and
thrift industry. The key lies in providing institutions with the appropriate incentives for risk-taking. While existing proposals differ in
their details, there is widespread agreement that the Congress and
the next Administration should squarely address the problems created by the current deposit insurance system. Several economists
have pointed to the need to liquidate or reorganize insolvent banks
and thrifts as quickly as possible. Critics of such reorganization note
the high price tag, estimated to be in excess of $50 billion for insolvent thrifts alone. Moreover, a large portion of the payment of this
bill will need to come directly from the public. The remainder will be
paid for indirectly by consumers through deposit insurance premiums levied on banks.
Removing insolvent banking institutions from the banking system
is only a first step. The insurance system itself needs to be redesigned. In particular, the scope of Federal deposit insurance should
be significantly curtailed. Reducing the ceiling on deposit insurance
would help achieve this end. In addition, large depositors and credi-




203

tors should not be provided with de facto Federal deposit insurance.
These changes would restore some much-needed discipline to the
system.
In addition to reforming deposit insurance, regulators should establish procedures to step in and restructure institutions before they
become insolvent. For example, a regulator can require accounting
procedures that use market valuation of assets so that regulators have
better information on the net worth of banks. The combination of
better regulatory practices and lower ceilings for insured deposits
should promote the health of the banking industry.
Two recent government studies provided careful examinations of
banking regulation. The 1984 President's Task Group on Regulation
of Financial Services chaired by the Vice President and the 1985 Cabinet Council on Economic Affairs both made suggestions for streamlining the oversight process and for providing more appropriate incentives for banking institutions. Some of the more salient recommendations included risk-related deposit insurance, higher capital requirements, stronger disclosure requirements, limitations on insurance to insured depositors, and increased monitoring and more vigilant enforcement by oversight agencies. These ideas are designed to
increase monitoring on the part of interested parties and ensure that
banking institutions have adequate amounts of their own capital at
risk. Had these ideas been adopted in 1985, the problems facing the
FSLIC and the FDIC would probably be much more manageable
now.
The banking industry is evolving rapidly. The purpose of regulation should be to encourage the development of a healthy financial
service sector that can compete internationally. Needed reforms include not only restructuring the deposit insurance system, but also
redefining the appropriate sphere of competition for depository institutions. While the two exercises differ, they will both rely heavily on
an understanding of how the incentive structure faced by today's
banking institutions has led to the current crisis.
RETHINKING THE LIMITS OF NATURAL MONOPOLY

There has been a longstanding debate about how best to regulate
natural monopolies. The traditional approach to such problems has
been to regulate selected firms in order to prevent excessive profits.
This regulation usually assesses the value of the firm's capital stock
and then allows the firm to obtain a * 'reasonable" return on its investment. In practice, Federal and State regulatory commissions do
not fix the rate of return per se, but rather agree on prices that the
firm can charge. The prices result in a revenue stream for the firm




204

that is not supposed to, but sometimes does, exceed the allowable
rate of return.
Rate-of-return regulation has several problems. First, it tends to be
time-consuming and expensive. A rate proceeding before the Federal
Communications Commission concerning appropriate charges for
international satellite communications took 11 years. A second problem, related to the first, is that it is often difficult to determine which
aspects of a firm's capital stock should be included in calculating the
appropriate rates, and how this capital should be valued. A third
problem is that firms subject to such regulation have relatively little
incentive to produce output efficiently. In cases where the allowable
rate of return exceeds the cost of capital, firms may try to increase
their capital stock beyond what is efficient so that they can receive
higher revenues. In cases where it falls short, firms may be unable to
add needed capacity. The regulator is in the unenviable position of
having to set a "reasonable" rate of return and determine whether
price increases are justified on the basis of limited information about
demand and costs.
Rate-of-return regulation needs to be compared with other approaches for dealing with industries with strong elements of natural
monopoly. While competition could conceivably result in higher
costs when there is a natural monopoly, it may also serve to spur innovation and drive down prices. For example, a study of electric utilities in markets with and without competition suggests that rates
could be lowered by increasing competition. The point is that most
forms of economic regulation are inherently flawed. Because policy
should be based on actual rather than theoretical performance, competition, even in the presence of technologies with natural monopoly
characteristics, may be preferred.
Given the costs associated with the rate-making process and the attendant inefficiencies, there have been several suggestions for reforming the process. For example, one approach is to allow firms to
bid on the right to offer a particular service, and give the contract to
the highest bidder. Such franchise bidding schemes can present difficulties. Once the bidder wins the contract, it may be difficult to
ensure adequate performance. Moreover, the contractor may be able
to create conditions that make it difficult for new entrants to enter
the market when the contract has expired. Such problems tend to
limit the applicability of this approach.
Two new ideas have recently surfaced that, for some cases, represent promising alternatives to traditional rate-of-return regulation of
natural monopolies. The first would replace such regulation with a
"price cap/' The idea behind a price cap is to set an upper limit on
the price a firm can charge over a given period, but then allow the




205

firm to choose any price that does not exceed the cap. The advantage of this approach is that the firm has an incentive to produce its
output at least cost. Moreover, the firm also has a strong incentive to
search for new technologies that would lower production costs because it would be allowed to retain its profits.
Price caps present some difficulties in practice. In many instances it
may not be a straightforward matter to set the price cap at a level
reflecting a competitive price. If the price cap needs to be revised
periodically, the problem is further complicated. Indeed, constant revision of the price cap may result in a system of regulation as cumbersome as traditional rate-of-return regulation. The challenge lies in
selecting applications where price caps will result in efficiency gains.
While there are no hard and fast rules, it would appear that price
caps are most likely to succeed when a firm or industry is changing
from monopoly to a more competitive situation.
The regulation of prices for some long-distance calls provides one
potentially promising application of price caps. The Federal Communications Commission is considering using this approach as a way of
regulating the portion of local telephone companies' costs that are
subject to Federal jurisdiction, and as a way of regulating part of
AT&T's business for a short period of time before moving to complete deregulation. Whether price caps will be adopted in this case is
uncertain. They are already being used in a variety of contexts including telecommunications in the United Kingdom. British Telecom,
formerly a state-owned entity, is now subject to price caps that are
adjusted periodically to account for inflation and productivity. A
study of this application suggests that price caps have succeeded in
promoting efficiency.
A second approach to the issue of natural monopoly is to devise
institutional mechanisms that permit competition to thrive even
where the production of a commodity has certain characteristics of
natural monopoly. An idea that appears to hold great promise for introducing competition is that of shared capacity rights. These rights
allow private parties to use property jointly in a way that benefits
them all. One example is the sharing of common space and facilities
in a shopping mall. A second example is the joint ownership of a
fiber optics cable for trans-Atlantic calls.
This idea can be, and often is, applied to large investments in complex networks. For example, suppose it is cheaper to build one large
pipeline than two small pipelines to transport natural gas. The pipeline need not be owned by a single firm. Indeed, several firms could
each own a share of the pipeline. The ownership share would entitle
the firm to use a certain fraction of the pipeline's capacity. By dividing ownership among several firms or individuals in this manner, it is




206

possible to imagine a competitive market emerging for pipeline capacity, whereas if a single business owned the only pipeline, competition would not exist. This approach can be a first step toward promoting competition as regulatory barriers to entry are reduced. The
idea of sharing capacity rights may hold promise for introducing
competition into such diverse areas as telecommunications, electricity
transmission, and the transport of oil and natural gas by pipeline.
In addition to the new approaches that are evolving as substitutes
for traditional rate-of-return regulation, recognition is growing that
many industries formerly thought to have strong natural monopoly
characteristics can be reorganized in ways that would foster greater
competition and efficiency. The change in the view of which industries are natural monopolies derives in part from technological
change, and in part from growth in the size of markets, which allows
several firms to compete. The equipment needed to provide a network for making a long-distance call is different now from what it
was 25 years ago. Competition in the long-distance market is now a
viable alternative.
A second factor contributing to the change in thinking about industries with natural monopoly characteristics stems from a more
careful examination of the cost structure in a given industry. For example, in the case of telecommunications, economists have argued
that telephone companies had some characteristics resembling those
of a natural monopoly, but that long-distance service could be more
efficiently provided if firms were allowed to compete.
The impetus for change has come mainly from industries that
stood to gain from changes in the regulatory environment. For example, new entrants in telecommunications saw an opportunity to gain
by providing consumers with lower rates on long-distance calls than
were being offered. Similarly, low-cost producers of electricity see an
opportunity to increase their profits as markets are opened up.
Indeed, in virtually all cases of regulatory reform, an outside stimulus
was provided by an interest group that stood to gain from those
changes in direct economic terms. Such interest group stimulus is
not, however, sufficient to generate regulatory changes.
Two of the more exciting sets of reforms are being applied to the
regulation of electric utilities and pipelines that transport energy.
The changes in these industries underscore the potential for regulatory reform as well as some of the pitfalls.
Increasing Competition in the Electric Power Industry

Electric utilities are frequently cited as a classic case of natural monopoly. Indeed, all three components of the industry—generation,
transmission, and distribution—were previously thought to be subject
to economies of scale. Thinking on this issue has changed dramati-




207

cally in recent years. Econometric studies have provided ambiguous
results concerning the scale economies that could result from larger
power plants. While economies of scale probably exist over some
range of output (as they do with many firms), the range may be small
enough to allow several firms to compete in building and running
power plants that serve the same market. In addition, although it is
widely agreed that transmission and distribution systems are subject
to economies of scale and barriers to entry, there are ways to allow
competition to emerge even in these parts of the industry.
The interest in new institutional arrangements has been sparked,
in part, by problems that arose in the electric utility industry in the
early 1970s. Prior to that time, real electricity rates showed a marked
downward trend. This situation changed dramatically with the large
increase in oil prices. Traditional rate regulation was ill-equipped to
adapt to these changing circumstances. Consumer groups placed
continuing pressure on public utility commissions to hold down
rates, while utilities argued that rate increases were necessary both to
cover costs and make the necessary investments in new generating
capacity.
Fortunately, both the electric utilities and the regulators have
begun to develop some innovative solutions to these problems. Utilities, in cooperation with Federal and State regulators, have developed a variety of sophisticated contracting arrangements for thepurchase and sale of power. Under long-term contracts, utilities can
effectively purchase partial or full ownership of a generator. At the
other end of the spectrum, spot markets for electricity allow utilities
to exchange power on an hourly basis.
One of the more important pieces of recent legislation to promote
the move toward a more competitive generating sector was the Public
Utility Regulatory Policies Act of 1978 (PURPA). The primary purpose of this legislation was to encourage cogeneration and small
power production, and it has done just that. Cogeneration involves
the joint production of heat and electricity at the same facility. This
process often facilitates the generation of electricity at a cost lower
than is possible at a conventional power plant.
Cogeneration has increased dramatically since the implementation
of PURPA. A report recently issued by the North American Electric
Reliability Council projects that between now and 1997, some 20,000
megawatts, or 27 percent of all new capacity coming on line, will
come from sources that are not owned exclusively by traditional electric utilities. While PURPA promoted the use of different generation
technologies as well as small facilities, it also led to the purchase of
some unneeded capacity. The principal problem was that States
sometimes provided price signals to builders of capacity that did not




208

reflect the underlying economics of the particular power system receiving the electricity.
Although the implementation of PURPA has created inefficiencies,
it has helped to create a group of entrepreneurs interested in having
greater access to the market for producing electric power. The legislation also demonstrated that an electricity generation market with
several participants was technically feasible. That is, it was possible to
allow new entrants into the generating sector without compromising
the reliability and stability of the entire power system. Having shown
the technical feasibility, the principal challenge that remains is to
design rules that promote efficiency in the generation sector.
In the past year, the Federal Energy Regulatory Commission
(FERC) has issued three proposed rules designed to encourage
greater competition in the market for generating electricity. The
rules provide guidelines that, if implemented, would reduce regulatory entry barriers for generating electric power, and would also
specify appropriate compensation mechanisms for rewarding entrepreneurs. There are three key aspects of the proposed rules. The
first is to define guidelines for administratively determining "avoided
cost." Avoided cost refers to the cost that a utility does not need to
incur (i.e., it avoids) if it purchases electricity from a third party. In
order to promote efficiency, FERC defines avoided cost in a way that
approximates the economic concept of marginal cost. The cost a utility avoids will depend, among other things, on the availability of
other generating units, which in turn will depend upon the time of
day or year at which the power is expected to be needed. These
guidelines will help States avoid unnecessary capacity purchases. In
particular, the rule is designed to avoid problems under PURPA
where utilities were sometimes forced to purchase uneconomical
power.
A second key feature of the proposed rules is that they promote
market-based mechanisms that would eliminate the need for an administrative determination of avoided cost. The basic idea is to establish a market where firms are allowed to bid on supplying capacity
that is needed. Other things being equal, the firm with the lowest bid
would supply the additional capacity. For the market to work effectively, capacity needs to be defined carefully. The proposed FERC
rule on bidding suggests that nonprice factors, such as those related
to system reliability, be put into writing if they are a characteristic
desired by the purchaser.
A third key aspect of the proposed rules, which will introduce
greater competition into the electric power generation market, is the
lowering of barriers for new entrants. An entire rule is devoted to
defining a class of "independent power producers.** Just as the name




209

implies, the independent power producers generate electricity for
sale outside an area in which they have market power as long as they
do not have control over key transmission facilities. The intent of the
rule is to provide a framework so that such producers can compete
without being subject to traditional rate-of-return regulation. Both
utilities and nonutilities can be independent power producers. One
implication of this rule is that it allows utilities that can to build inexpensive reliable sources of power to compete in markets outside of
their area. Thus, for example, a utility operating in North Carolina
could build a power plant in California to supply customers there if it
were the lowest bidder. This increased competition will ultimately
mean lower electricity prices for consumers and businesses, and it
will also enhance the Nation's ability to compete abroad.
These proposed rules represent an important step toward developing a more efficient electric generation sector. However, much more
needs to be done even in the context of generation. For example,
one alternative to increased generation capacity is conservation. Several utilities have encouraged conservation through advertising, and
in some cases, providing economic incentives to users that reduce
demand. A more general policy that provides incentives for consumers and producers to put conservation efforts on an equal footing
with capacity investments would promote further cost savings.
One important aspect not addressed by the proposed rules is the
determination of needed capacity. Under current regulations, the
local public utility and the public utility commission jointly make this
determination. While such projections are made on the basis of
demand forecasts, these demand forecasts are based on a set of prevailing prices that rarely reflect underlying costs. What is needed is a
system where electricity users are asked to pay a price that reflects
the costs they impose on the system.
Although widespread support exists for promoting greater competition in the electric generation sector, there is no consensus on what
to do about transmission and distribution systems that are subject to
economies of scope and scale. Competition in these areas may also
be desirable. Indeed, in some cases, utilities are devising new arrangements, such as shared capacity rights, that will help spur competition.
It is possible to imagine both the transmission and distribution
segments of the electric utility industry taking advantage of shared
capacity rights. Indeed, after finishing with its rules on generation,
FERC intends to take a closer look at opportunities for promoting
competition in the transmission sector. The idea of shared capacity
rights has been shown to work in practice. The key to its successful
implementation in the electric utility industry and other segments of




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the economy that are heavily regulated (such as telecommunications)
is to design systems that would enable currently regulated utilities to
adapt to a competitive environment.
Regulation of Oil and Natural Gas: Some New Developments

Energy regulation over the past two decades provides a textbook
study of the effects on markets of price controls and government
intervention. Fortunately, the wave of price controls introduced in
the 1970s has for the most part been reversed. Price controls remain
on some fuels, such as natural gas. However, controls on gasoline
and crude oil prices were removed at the beginning of this Administration. The lessons to be learned from the experiments with price
controls are clear. They lead to inefficiencies and shortages, and they
typically exacerbate adverse impacts on the overall economy, such as
those that resulted after the oil price hikes in the 1970s.
The transmission system for oil and natural gas remains regulated.
The Administration recently moved to deregulate part of the oil
pipeline network and set up a system of price caps for the remainder
of the system. In addition, FERC has stated that it will reduce regulatory oversight of proposed rate increases by an oil pipeline if the
pipeline lacks significant market power.
The States and FERC still regulate natural gas pipelines. The
FERC has issued several rules and proposed rules that attempt to
ease some of the problems in the supply of natural gas. One proposed rule focuses on allowing pipeline capacity rights to be bought
and sold. This change would enhance the efficiency of the network
by allowing the pipeline to be allocated to the highest valued uses.
The movement toward more complete deregulation of the natural
gas industry should be promoted. It not only makes good sense from
an economic point of view, but it is also important for environmental
reasons. Natural gas is a clean-burning fuel that results in relatively
low emissions of carbon dioxide. Thus, this fuel could be part of a
strategy aimed at addressing concerns regarding global warming.
Moreover, because the combustion of natural gas results in much
lower levels of nitrogen and sulfur oxides than oil or coal, it could
play an important role in reducing acid deposition. '
In conclusion, the potential for increased deregulation in areas formerly thought to be natural monopolies is enormous. This potential
lies primarily in areas characterized by network structures such as
telecommunications, electricity, energy, water delivery systems, and
air traffic control. Price caps, shared capacity rights, and other innovative approaches to regulatory reform should be pursued vigorously.




211

PRIVATIZATION

Privatization is a natural extension of deregulation. Eliminating
government provision of services fosters competition by increasing
the role of the market. Government provides a large array of goods
and services that the private sector could also provide. Examples include the air traffic control system, the enrichment of uranium, and
the postal service. From an efficiency point of view, the critical question is whether firms could provide a similar or improved menu of
services at lower cost. The answer depends on the nature of the service; however, there is widespread agreement that the government
now performs several tasks that the private sector could more effectively and efficiently handle. The motivation for keeping these functions within the sphere of government is usually to achieve objectives
other than economic efficiency.
The rationale behind privatization—the movement of government
activities to the private sector—is that the private sector can often
provide services more efficiently because it is subject to the discipline
of market forces. However, recent history suggests that even privatization measures that clearly promise efficiency gains are likely to
encounter substantial political resistance. As with other regulatory reforms, the key to the success of privatization lies in designing institutions that will allow the beneficiaries of such change to compensate
adequately those who stand to lose.
There are essentially three techniques for the privatization of
goods and services now supplied by the government sector. One involves selling government assets to persons who will manage them
privately. The sale of Conrail in 1987 is an example of Federal Government divestiture of an enterprise as a functioning unit. Assets also
can be sold piecemeal; examples include the sale of obsolete military
bases, loan portfolios, and surplus equipment.
A second privatization technique is contracting out, whereby government contracts with private firms to provide goods and services
that it would otherwise supply directly. The Federal Government now
contracts to purchase approximately $200 billion of goods and services annually. Contracting out usually results in cost savings because
of the competition for contracts among vendors. A 1986 General Accounting Office study determined that additional opportunities for
contracting out could result in the transfer of between 95,000 and
500,000 current government positions to the private sector, at annual
savings ranging from $0.9 billion to $4.6 billion.
Contracting out is most likely to succeed when the terms and
measurement of service delivery are clear and easily defined, where
at least several firms have the capacity to perform the contract, where
the contractor does not have to make large new capital expenditures,




212

and where the contract can be subject to regular renegotiation and
renewal. Examples of areas particularly well-suited for contracting
out include data processing, laboratory testing, and payroll services.
A third technique for privatization is the use of vouchers, through
which the government, rather than directly providing goods or services, distributes chits, such as food stamps, that allow eligible consumers to purchase those goods and services from private suppliers.
For example, the government now provides housing vouchers usable
for rental payments to more than 140,000 low-income households as
a substitute for public housing. A comparable proposal often discussed is the provision of education vouchers as a partial substitute
for public schools (discussed in Chapter 5 of the 1988 Report).
In March 1988 the President's Commission on Privatization issued
a comprehensive report calling for increased Federal Government
use of privatization. Areas identified by that report as being especially well-suited for increased privatization efforts included low-income
housing, housing finance, Federal loan programs, air traffic control,
education, postal delivery, military commissary operation, prison operation, urban mass transit, and intercity passenger rail transportation. The Commission did not examine some other candidates for
privatization, such as the uranium enrichment industry and the power
marketing authorities, because the Congress has said that no Federal
funds could be used to study privatization of these activities.
Postal delivery appears to have great potential for enhancement of
economic efficiency through privatization. The U.S. Postal Service
(USPS) is, in effect, a government-owned monopoly maintained by
law, because the private express statutes reserve letter delivery for
the USPS. Many aspects of postal delivery do not exhibit the natural
monopoly characteristics that would preclude their competitive provision by multiple firms, and thus are good candidates for privatization
measures. Some limited privatization of postal delivery has already
occurred. The USPS annually contracts out about $3 billion of services, primarily long-distance mail transport and rural retail and delivery services. It also offers discounts to large mailers who pre-sort
their mailings. In addition, private express couriers have been allowed since 1979 to deliver "extremely urgent" mail, subject to time
of delivery or minimum price restrictions. These firms have grown
dramatically. One private courier, for example, now handles more
than 178 million pieces of urgent mail a year, and a second firm now
controls more than 90 percent of the parcel market. The USPS has
responded to this competition with its own express mail service, but
has been able to retain only a small share of this market.
Further privatization of postal delivery could be encouraged in several ways. The Privatization Commission recommended the repeal of




213

the private express statutes, particularly with regard to third-class
mail and rural delivery; repeal of the restrictions on private use of
letter boxes; loosening of the restrictions on private delivery of
urgent mail; and more widespread use of contracting out. The Commission also recommended that the possibility of private ownership
of the USPS be considered, with priority being given to employee
ownership, in whole or part.
One obstacle to more widespread use of privatization involves
groups that are special beneficiaries of the government provision of
certain goods and services. For example, when the Federal Government provides goods or services, it often charges a single price. This
practice frequently results in the cross-subsidization of high-cost consumers by low-cost consumers. Those people receiving subsidies
resist privatization measures that would end or reduce their subsidies. A second group of special beneficiaries are the government
workers who now provide goods and services, and who receive a
level of compensation and benefits that they might have difficulty retaining were their services provided in a market environment. The
Privatization Commission noted that for privatization initiatives to be
implemented, it would often be necessary to appease beneficiaries of
the current status quo by adequately compensating them for the benefits they would lose as a result of privatization.
The resistance of current beneficiaries has successfully blocked
most privatization initiatives in recent years. Support is growing,
however, for more widespread use of privatization, based both upon
the realization that substantial benefits can often be obtained, and
upon the recognition that a trend toward privatization is accelerating
worldwide. This trend is most obvious in the United Kingdom, but is
visible also in many other countries, including some with socialist
governments. If privatization measures can address the concerns of
special interest groups, it may be possible to expand the sphere of
competition and improve overall economic welfare.
RETHINKING SOCIAL REGULATION
Just as the nature and scope of economic regulation may be changing significantly, there are signs that new approaches to social regulation are emerging. Whereas economic regulation appears to be receding, there is no sign that social regulation is on the wane. A large
portion of the public believes that the Federal Government should
take a strong leadership role in protecting the public from environmental, health, and safety risks. Elected officials frequently accommodate these concerns by passing legislation aimed at "fixing" the
problem. Unfortunately, much of this legislation has fallen far short




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of its goals. In some cases, this was because the goals were highly
symbolic. For example, 1972 amendments to the Clean Water Act
called for the elimination of all discharges into navigable waterways
by 1985—a solution that, even if possible, would have been prohibitively expensive. In other cases the legislation itself led to decisions
that inadvertently increased both the risks and costs to society. For
example, the Consumer Product Safety Commission requirement for
child-proof caps on products, such as aspirin, appears to have led initially to an increase in the number of poisoning accidents. Evidently
parents became more lax about leaving hazardous products within
the reach of children.
Agencies involved in social regulation tend to specialize in one of
two areas. "Standard-setting*' agencies focus on defining acceptable
levels of risk and setting standards accordingly. These agencies seek
to lower the current amount of risk society faces from activities such
as breathing polluted air, working in hazardous areas, being exposed
to excessive airport noise, and driving automobiles. Each agency
faces the burden of proof, both legally and politically, in setting
standards. By and large the standard-setting agencies seek to reduce
the levels of risk that are already commonplace in society.
A second type of regulatory agency focuses on screening new risks
by requiring manufacturers to prove that their product is not harmful. Absent such "proof," the agency may prohibit the product from
being sold to the general public. While statutes for standard-setting
agencies sometimes require a recognition of the costs imposed on
the regulated, statutes for screening agencies rarely contain such provisions. Consequently, agencies are not permitted to weigh the safety
of a new product against the safety of a product it would replace.
Moreover, screening agencies often need not justify, either to the
courts or the Congress, the costs, or forgone benefits, of prohibiting
the sale of potentially valuable products.
There has been increasing recognition that the legislative mandates
underlying both kinds of regulatory approaches lead to inefficiencies.
Indeed, one of the most important challenges that remains is to
design regulatory institutions that achieve social objectives more efficiently. Recently, several agencies have attempted to implement some
innovative reforms aimed at streamlining and improving the regulatory process. The following review highlights a few of the more noteworthy reforms and identifies some of the challenges that remain,
THE EXPANDED USE OF MARKET INCENTIVES

In the 18 years since its establishment, the Environmental Protection Agency has developed a large and still growing body of regulations to cope with a wide range of environmental problems, including




215

toxic dumps, acid rain, and smog. The EPA's approach to environmental management has been rigid, allowing companies little flexibility in meeting mandated environmental targets. Unfortunately, as
with all highly centralized approaches to problem-solving, this
command-and-control approach fails to take advantage of important
information. Firms, not regulators, have the detailed knowledge
about pollution control costs that is crucial to expensive approach to
cleaning up the environment.
Regardless of one's view of the value of environmental improvements, EPA's rigid regulatory strategy has clearly wasted a substantial
portion of the Nation's investment aimed at improving air quality.
The cost of air pollution control during the 1980s has averaged more
than $30 billion annually, and economic studies indicate that more
cost-effective pollution control strategies could have achieved the
same degree of environmental quality for billions less. The combination of political pressures and legislative mandates from the Congress
has made it difficult for EPA to accommodate concerns about the
cost of regulations.
Over the past decade EPA has undertaken several modest reforms
that allow firms greater flexibility in meeting environmental standards. By far the most ambitious of these is the emissions trading
policy, which includes the well-known bubble program and three
lesser known programs. The basic idea of emissions trading is that
firms, given the opportunity, can often devise less costly ways to control their emissions than can regulators. The emissions trading policy
is an attempt to take advantage of this fact by creating markets in the
de facto rights to pollute. Trading of these rights within and between
firms can increase efficiency by concentrating air pollution control efforts on those emission sources that cost the least to control.
On balance, emissions trading has produced a mixed bag of accomplishments and disappointments. The program has afforded
many firms flexibility in meeting emission limits, and this flexibility
has resulted in significant aggregate cost savings—in the billions of
dollars—without sacrificing environmental quality. However, these
cost savings represent only a small portion of the total potential savings. Far less than 1 percent of the total stock of emissions has been
traded, and economic studies suggest that trading could be much
more active.
An important reason that more active markets have not emerged is
that the emissions trading program has been the source of a great
deal of controversy over regulatory reform. The EPA and local pollution control agencies have tried to minimize this controversy by placing constraints on the use of emissions trading. Unfortunately, some




216

of these constraints have dampened industry's interest in making
greater use of this exciting regulatory alternative.
The politics of emissions trading can best be understood in terms
of a struggle over the nature and distribution of property rights. Environmentalists and industry disagree over who is entitled to pollute
and at what levels. Despite these differences, the reform represents a
constructive attempt to cut the cost of regulation. Markets have
emerged and performed better than traditional command-and-control
regulation.
Several positive market-based reforms have followed in the footsteps of emissions trading. For example, in 1982 EPA implemented a
"lead trading" program designed to lower the cost of achieving the
phase-out of lead in gasoline. Overall, EPA estimated the program
would save more than $200 million annually when it was in operation. Similar market-based programs have been proposed for such
diverse problems as acid rain and the depletion of stratospheric
ozone. If implemented for acid rain, a trading program could save
tens of billions of dollars compared with more onerous commandand-control methods that would require power plants to use scrubbers to remove emissions of sulfur oxides.
THE IMPACT OF SOCIAL REGULATION ON INNOVATION

While regulatory screening can protect the public from certain
risks, it can also have undesirable side effects. Screening can, and
sometimes does, lead to the banning of products whose expected
benefits outweigh their costs because the screening procedure frequently focuses almost exclusively on a narrow definition of risk.
Since 1958 the Delaney Clause has required the Food and Drug Administration (FDA) to prohibit any food additive found to cause
cancer in either man or animals. Such zero-risk strategies do not
permit explicit comparison of the costs and benefits of various
chemicals. Thus, screening of new risks can serve as an entry barrier
that limits the introduction of new products, even in cases where the
new item is less harmful than the one it would replace.
Ironically, zero-risk strategies can lead to marked increases in the
level of risk. For example, EPA in 1983 denied a request for permission to use a fungicide on hops that was expected to increase a heavy
beer drinker's odds of getting cancer by 1 in 100 million. The denial
resulted in the continued use of existing fungicides thousands of
times riskier. The EPA has recently dropped the zero-risk rule, replacing it with a policy that allows the introduction of pesticides if
they pose a "negligible risk/* currently set at 1 in 1 million. Such a
policy encourages innovation on the part of chemical companies to




217

develop new and safer products to replace their existing, and frequently more dangerous, counterparts.
Screening agencies can dramatically affect the rate of innovation. A
case in point is the Food and Drug Administration. Following the
1962 amendments to the Food, Drug, and Cosmetic Act, FDA required pharmaceutical companies to prove not only that their proposed new drugs were not harmful, but also that they were "effective" (i.e., do what the manufacturer claims they will). Several studies
have documented the impact of the requirements on slowing the approval of "new chemical entities." One study showed that on average
54 new chemical entities were approved annually in the 13 years preceding 1962; for a similar period after the amendments, the average
number fell to just over 16, a 70 percent decline. The decline in new
drug innovations restricts the public's choice of remedies, a choice
often made under a physician's guidance.
In response to criticisms about the FDA's slow approval process,
which took on average 10 years to complete, the agency has attempted to streamline its streening procedures, both in the research and
market approval stages. Administrative measures have reduced the
average drug processing time by 2 years. In addition, the number of
pending new drug applications fell from 343 at the end of 1983 to
204 just 3 years later. Moreover, the average annual number of new
drug applications approved by FDA jumped from 86 between 197679 to 109 between 1980-86. More recently, FDA has agreed to help
companies design drug studies that will produce data as early in the
process as possible, and in certain cases to hasten the approval process for drugs where serious illness or death threatens, as in the case
of acquired immune deficiency syndrome (AIDS) or hairy cell leukemia. The reforms in the FDA approval process could result in a significant increase in the number of new drugs provided that they actually reduce the costs to firms of getting drugs approved.
In the case of life-threatening diseases, such as AIDS, a strong argument can be made that the decision to use new experimental drugs
should be left to the patient and the patient's physician. The President's Task Force on Regulatory Relief, chaired by the Vice President, recently endorsed efforts that would reduce the role of the Federal Government in such life-threatening situations. The FDA could
expedite the process by conditionally approving drugs after initial investigations show them to be safe. Further testing could then be performed in the field after issuing the drug with proper warnings to
both physicians and patients, rather than requiring that such testing
be done in industry laboratories.
In addition, the Drug Export Amendments Act of 1986 allows FDA
to approve applications to export drugs not yet approved for domes-




218

tic use, but sanctioned under a foreign country's regulations. By allowing the export of such drugs, FDA has provided additional incentives to pharmaceutical manufacturers to develop and produce new
drugs in the United States. Not only will this procedure help the domestic drug industry to compete globally and aid foreign citizens, but
it will improve the health of Americans as well by spurring domestic
product innovation.
One of the biggest challenges for screening regulation will be in
the emerging field of biotechnology. The United States has the potential to be a commercial giant in this field while still protecting the
public from unnecessary harm. The development of new technologies
in this field can lead to important applications in agriculture (such as
pest and climate resistance), medicine (such as the FDA-approved recombinant DNA-derived human insulin), containing oil spills, and
cleaning up hazardous waste sites. Worldwide demand for biotechnology products has been estimated to be as high as $100 billion annually by the turn of the century.
The proper Federal role in biotechnology is to ensure that new
processes and products do not, on balance, pose an unreasonable
risk to the public. Measuring the total risk of introducing a new product, however, is not straightforward. For example, if a Federal agency
prohibits a biotechnology product from being applied as a pesticide
to crops, it is implicitly favoring the use of currently approved pesticides. Regulators should not evaluate the risk of a new product in
isolation, but should consider the current level of risk of the products
it would replace.
This Administration has made strides in improving the regulatory
coordination of approving new products by forming the Biotechnology Science Coordinating Committee. In 1986 this Committee issued
a notice, approved by the President, that provided a framework for
coordinating the policies of the six Federal agencies with oversight
responsibilities. The notice concluded that regulation should focus
on the risks of the organism itself, not the process that formed it.
Thus, simply because a product could be labeled "biotech" did not
warrant special (and frequently more stringent) consideration.
Indeed, a National Academy of Sciences study argued that no unique
hazards are involved in genetically engineered technology.
A number of new products have reached the marketplace. The
FDA has approved nine therapeutic drugs, including a new anticancer drug and a new hepatitis vaccine. The FDA has also approved
a human growth hormone, now marketed by two companies, for
treating growth disorders in children.
Biotechnology products have been used in waging the war against
deadly diseases as well, including the first vaccine tested for use




219

against AIDS. In all, more than 600 biotechnology products are now
undergoing clinical trials, including special grains capable of growing
in desert regions of drought-stricken Africa.
Although these new developments in screening procedures are encouraging, there is a fundamental design problem inherent in the
current approach to screening: regulators are not given enough
credit for allowing new products to reach the marketplace sooner. At
the same time, they often have to shoulder a major share of the
blame if something goes wrong after a new product or chemical is
approved. Thus, screening procedures involving civil servants are
likely to reinforce the status quo, which means that technological innovation is likely to be slower than it needs to be.
LESSONS AND CHALLENGES
It is always tempting to respond to a perceived social need by calling for government intervention of one sort or another. The experience to date with Federal regulation suggests the need to keep this
impulse in check. This observation does not mean that regulation
should be eliminated. It means that regulation should be applied judiciously. The challenge is to design institutions that create incentives for private market solutions to address problems, such as pollution, that can arise as a result of marketplace activity.
The strengths and limitations of some of the older approaches are
now well understood. Price and entry regulation often leads to inefficiencies and tends to stifle innovation. Inflexible social regulations
that specify in detail how firms should behave also tend to stifle innovation. It makes little sense to require a business to install an expensive pollution control device if it can devise a better way to achieve
the same goal at half the price. Yet in many cases regulations do not
provide firms with the incentive to search for such innovations.
Gains can result from a judicious application of marketplace incentives in traditional areas of economic regulation as well as social regulation. Calculating the gains from such activities and designing institutions that will enable the public to benefit from these gains are
necessary steps in promoting constructive reforms. Strong political
forces, however, protect the status quo. These political forces are not
likely to change unless the configuration of underlying interest
groups changes or there is a more widespread understanding of how
current institutions often lead to inefficient and ineffective regulation. This understanding is promoted, in part, by successful examples
of deregulation and successful changes in regulatory procedures that
promote more efficient policies. It will also be promoted as the cost
of onerous regulations is more widely recognized.




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The United States now competes in a global marketplace. In order
to continue to compete successfully, the Nation must develop approaches to regulation that promote technological innovation. This
goal can be reached through gaining an understanding of the institutions that yield such innovation, and through asserting the political
leadership necessary to meet the challenge.




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CHAPTER 6

Science, Technology, and the U.S.
Economy
TWENTIETH CENTURY ADVANCES in science and technology
have brought deeper understanding of the nature of matter and the
origins of the universe, the vanquishing of many forms of disease and
pestilence, efficient and economical worldwide communications, and
human travel to the Moon. For example, the invention of the integrated circuit, with its seemingly unlimited applications, has been
compared in importance with Gutenberg's movable type. The revolution in biotechnology, advances in recombinant DNA (deoxyribonucleic acid) research, and other breakthroughs in health technologies
promise major advances in the fight against disease.
The United States has been iri the forefront of these stunning accomplishments, and the U.S. Government has played a leading role
in stimulating and undertaking the research and development needed
to achieve them. The government has a keen interest in science and
technology, because work in those fields relates directly to national
security technologies, and also because the results of such research
have significant economic consequences. During the past 8 years, this
Administration has sought to reorient direct government involvement
in research and development (R&D) and stimulate the forces of the
private sector as well.
Advances in knowledge contribute importantly to the Nation's real
economic growth; about one-half of all growth in output per capita
has been attributed to technological knowledge and managerial and
organizational know-how. Estimated rates of return to private industry's R&D spending range from 20 to 50 percent. More importantly,
the rate of return to society is about double the private rate. Thus,
R&D is a good investment for society. Because the returns to society
typically exceed the returns to the sponsor of the research, however,
the private sector has inadequate incentive to invest in R&D, particularly where the results cannot be easily appropriated for production
and profit. Partly because of this underinvestment, the Federal Government supports R&D.




223

In short, government policy toward, and support for, scientific research and technological innovation are important for the future of
America.
OVERVIEW
The purpose of this chapter is to provide an economics perspective
on the debate over the appropriate policies to ensure the continued
contribution of science and technology to U.S. economic growth.
Like the other chapters of this Report, it examines changes in institutions and incentives over the longer term. This chapter does not attempt to provide a comprehensive review of U.S. science and technology (S&T) policy, nor of all the factors that affect the incentives
of firms to invest in R&D and to innovate. Instead, it highlights some
of the recent changes in U.S. approaches to science and technology.
The chapter first reviews international trends in science and
technology that influence the relative U.S. position in science, in
technology, and in innovation. It also reviews the U.S. position in the
international trade of high-technology products and the role that
technology plays in trade relationships. Based on this evidence, some
of the fears of a declining U.S. position in science, technology, and
high-technology trade are misplaced. Given economic conditions
after World War II, the United States was able to become the dominant supporter of R&D, which led to technologically advanced products. As other nations recovered economically, they too began to
invest in R&D. Thus, some decline in the relative U.S. position is to
be expected. The increasing S&T capabilities of U.S. industrial partners provide an opportunity, as more countries are sharing the costs
of technological advances, sharing basic research, and providing benefits to consumers in the form of technologically advanced products.
However, those capabilities also present a challenge to American
producers. An area of growing concern to U.S. industry, based on its
trade performance, is its manufacturing technologies, and industry is
taking a variety of steps to remedy its deficiencies. Some of the current policy debate is over the appropriate Federal role in this area.
This chapter also examines the institutions and incentives in the
S&T policy environment. It highlights several S&T policy initiatives
of the 1980s aimed at strengthening the incentives of U.S. industry to
invest in R&D: taxes, antitrust, and intellectual property protection.
It reviews the incentives and new institutional relationships that encourage the transfer of research results to industry from the academic sector and government laboratories. The latter initiatives play an
important role in facilitating the rapid transfer of science into commercial applications.




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Ultimately, for society to benefit from inves
nts in R&D, the results must be turned into products, processes, and services—technology must get off the shelf. A major concern is the broad economic
benefit of federally supported research. As described in this chapter,
a strong technological position by U.S. firms will not keep production from going offshore, but this result does not preclude U.S. consumers and investors from benefiting from that technology. In addition, the U.S. research system is very open. International research
collaboration—whether formal or informal—benefits the United
States as well as the foreign partners by improving the productivity
of the R&D process. Where exclusive property rights to research results can be established, however, the U.S. Government has already
taken steps to protect such knowledge.
Recommendations for improving the efficiency and the effectiveness of the R&D and innovation process must recognize the decentralized and competitive S&T system. The system has served the
United States well. While the S&T systems of other countries differ
in some ways from that of the United States, they are not demonstrably superior. However, the incentives and institutional relationships
within the United States need to be examined to ensure that barriers
do not inadvertently limit the ability of the public's investment in
R&D to benefit the Nation as a whole.
INTERNATIONAL COMPARISONS
The United States continues to be a leader internationally in science, but U.S. firms face strong technological competition from other
major industrial countries. Japanese firms are particularly capable in
implementing new manufacturing processes and in commercializing
technologies.
SCIENCE AND TECHNOLOGY INPUTS

Chart 6-1 characterizes the national R&D effort by source of funds,
performer, and character of work (basic research, applied research,
and development). This chart provides background for the discussion
in this section.
Aggregate Research and Development Spending

Total U.S. expenditures on R&D, adjusted for inflation, have
grown dramatically since the 1950s. Real spending (in 1982 dollars)
grew from $20 billion a year in 1953 to $104 billion in 1987. National R&D funding trends for France, West Germany, Japan, the United
Kingdom, and the United States for the period 1965-86 are shown in
Chart 6-2. In 1986 the United States spent more on R&D than
France, West Germany, Japan, and the United Kingdom combined.




225

Chart 6-1

The National R&D Effort
Expenditures for research and developmental 24.9 billion, Fiscal Year 19881

3% 1%
By
source

X
/

V

47%

/

Federal Government

K
By

\

performer
/
V
[s^
By characterX
of work
/

/.
12%

49%

. . '.
Industry
/

Universities and colleges.

10% i
1

72%

Applied

14%

22%

^ Other

°
x*. \ /yinstituti°ns

Research
Basic

/

3% 3°/

Development

n nprofit

\

FFRDCs2

64%

'Estimated.
^Federally funded research and development centers administered by universities
and colleges.
Source: National Science Foundation.

However, the U.S. share has declined; 20 years earlier, U.S. expenditures were more than twice the size of the combined expenditures of
those four countries.
Japan, West Germany, and the United States now spend roughly
the same proportion of their gross national product (GNP) on R&D.
Estimates for 1986 (the latest year for which data are available for all
countries) show that Japan devoted 2.8 percent of its GNP to R&D,
while the United States and West Germany each spent 2.7 percent.
Despite steady growth in non-Federal R&D, declines in the ratio of
R&D to GNP in the United States have resulted from lower Federal
R&D spending on defense and space. For example, the U.S. ratio
peaked at 2.9 percent in 1964 and dropped between 1968 and 1979,
reflecting the decline in Federal R&D for defense and space. West
Germany and Japan have the highest percentages of GNP devoted to
nondefense R&D expenditures. Japan's ratio stood at 2.8 percent in
1986, compared with 2.5 percent for West Germany and 1.9 percent
for the United States. Based on absolute amounts of nondefense
R&D funding, however, the United States still outspends these two
industrial competitors.
But which measure of national R&D spending determines technological capabilities: absolute levels of spending or share of GNP? For




226

Chart6 2

"

National R&D Expenditures, Selected OECD Countries

Billions of 1982 dollars

100

80
United States

60

40
Japan
United Kingdom
\ __ — — -*

20

1965

1970

1975

\

-*••*

"*~

--••^
West Germany

1980

1985

Note.— Dollar conversions are based on OECD purchasing power parity exchange rates and
U.S. Department of Commerce GNP implicit price deflators. Data for 1984-86 are preliminary or
estimated. Data for United Kingdom are not available for 1965; 1964 data used.
Sources: National Science Foundation, Organization for Economic Cooperation and Development,
and national sources.

some purposes, absolute R&D spending levels may well be more relevant in providing benefits to society. The basic output of R&D is
knowledge, which can be spread over any number of units of output;
increased production may require no additional knowledge. But comparisons of absolute levels of spending are also limited. One problem
is that new knowledge is not equally relevant to all sectors of the
economy. Because knowledge relevant to one industrial sector, such
as pharmaceuticals, may not be applicable to another, such as electrical machinery, a more diverse economic base may require more R&D
to sustain the pace of technological innovation across all sectors.
Major changes in a country's ratio of R&D to GNP do indicate a
shift in the emphasis that the country places on R&D. The full significance of that shift in emphasis, however, depends on where the
reallocated funds are spent.




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Industrial Research and Development

Industry supports a major share of national R&D in the five industrial nations examined here. Furthermore, industry's share increased
over the 1970-86 period. Industry in Japan supports the largest
share of national R&D (69 percent in 1986), followed by West Germany (61 percent that year). In the United States, industry funds
roughly one-half of all R&D.
Across the five countries, the industrial sector receives varying
amounts of government R&D funds. For those countries with major
expenditures on defense R&D, government provides a greater share
of industrial research and development. Thus, in the United States,
the government finances one-third of industrial R&D. In contrast,
Japanese companies fund 98 percent of all industrial R&D, and West
German companies support more than 80 percent of their own R&D
effort.
Comparisons of business R&D (conducted with both private and
government funds) show some differences in national emphases on
broad manufacturing sectors. All five nations emphasize the electrical
equipment industry (excluding computers). France, the United Kingdom, and the United States also particularly emphasize aerospace.
These comparisons are based on distributions of each nation's
spending in the industrial sector, not on funding levels that more directly affect technological capabilities in particular sectors. Nonetheless, the relative emphases within a nation identify what sectors it
views as important and, to the extent that R&D-intensive products
are internationally traded, where competition is likely to lie and gains
from trade are most likely to occur.
Scientists and Engineers

Both the United States and Japan send a much larger proportion
of their young adults to college than do France, West Germany, and
the United Kingdom. Similar proportions of American and Japanese
college-age populations receive first university degrees (25.9 percent
for the United States and 22.6 percent for Japan in 1986), while
fewer than 10 percent do so in the other three countries. Japanese
universities award a somewhat larger proportion of their degrees in
the natural sciences and engineering (27 percent of all degrees compared with 20 percent in the United States). Significant differences
arise, however, between the two countries in fields of emphasis.
Almost three-quarters of all Japanese students in science and engineering are in engineering, while slightly more than one-third of
such American students obtain engineering degrees.
The United States has the largest concentration of scientists and
engineers engaged in R&D, as a proportion of its labor force, fol-




228

lowed closely by Japan. Between 1965 and 1986, the other four nations increased their relative use of scientists and engineers to perform R&D, while U.S. employment of R&D scientists and engineers
as a share of the labor force reflected fluctuations in the ratio of
R&D to GNP. The absolute number of U.S. scientists and engineers
engaged in R&D has been increasing since 1973, however, giving the
United States a large base of R&D personnel.
SCIENCE AND TECHNOLOGY OUTPUTS

Policymakers are interested in the S&T system because of its generation of knowledge and ideas and the linkages between science and
technology. Several indicators of these outputs are available, although they are only proxies for, not direct measures of, the knowledge and ideas generated.
Nobel Prizes are a well-known indicator of scientific achievement.
Since 1945 U.S. citizens have received about 50 percent of such
prizes awarded in science. Based on where the research was done,
the United States has hosted an even larger fraction of the prize-winning work over the past four decades. But the Nobel Prize is not a
good indicator of the current strength of science in a nation because
the award lags the performance of the work by years, even decades.
On a per capita basis, of the nine countries whose citizens have received the most Nobel Prizes in science since 1970 (population in
1980), the United States ranked sixth, behind Sweden, Denmark,
Switzerland, Belgium, and Great Britain; Japan ranked ninth, behind
West Germany and France.
Citations or references to papers and patents are one indicator of
the influence or importance of the cited paper or patent. Based on
citation measures, U.S. scientific research is of very high quality. The
U.S. share of citations made in a large set of scientific journals published worldwide was about 40 percent higher than the U.S. share of
publications in that set.
Patent Shares

Because a patent protects an invention only in the country in which
the patent is issued, foreign filings for U.S. patents are indicators of
potential foreign competition. As might be expected when other nations increase their research capabilities, the U.S. share of some S&T
outputs has fallen. The U.S.-invented share of U.S.-issued patents has
fallen from 73 percent in 1970 to 52 percent in 1987. This declining
share also reflects an 8 percent fall in the actual number of patents
granted to U.S. inventors, even though total U.S. patents granted increased 29 percent. Japanese inventors have increased their share of
patents received fivefold, more than the inventors of any other coun-




229

try. Their share of U.S.-issued patents increased from 4 to 20 percent.
Links Between Science and Technology
Although science generates knowledge used for commercial applications, that linkage can be difficult to identify and quantify. One approach to quantifying this relationship identifies the use of academic
research in industry and the value of the time that such research
saves a firm in its innovation process. Based on this measure, the
contribution of academic research to industry is large; using conservative assumptions, the social rate of return is estimated to be at least
28 percent.
Another approach is to examine the connections by using publications as a proxy for science and patents as a proxy for technology.
Citations from patents to the scientific literature help to establish
links between science and its technological applications. In general,
however, the knowledge most frequently cited by patents is contained
in other patents. The patents described here are those issued by the
U.S. Patent and Trademark Office to residents of various countries,
and the references are those cited by the U.S. patent examiner.
Before granting a patent, the patent examiner must identify the prior
art, i.e., the knowledge at a particular time that determines whether
an invention is new and not obvious to someone with normal skills in
that area.
The science intensity of inventions from the five major industrial
countries has been increasing, as measured by the average number of
scientific publications cited per patent filed in the United States. Between 1975 and 1986, patents issued to U.S. inventors have grown
most rapidly in science intensity. The science intensity of Japanese
patents is now the lowest of the five countries, suggesting that advances in Japanese technology are based on improvements in other
patented technologies. At the beginning of the period studied, patents of inventors from the United Kingdom were the most scienceintensive, but patents of U.S. inventors overtook them in 1980.
Earlier studies of the connections between the development and
application of scientific knowledge found lags exceeding 20 years,
but some evidence now suggests that the lag is shrinking. Patent
filings are showing a much shorter time between publication of research results and their incorporation into a patentable technology:
science is being applied sooner. The median age of scientific publications cited in U.S.-issued patents over the 1975-86 period has been
declining for all five countries. Throughout the period, patents
issued to U.S. inventors have cited the most recent publications, followed by patents issued to Japanese inventors. West Germany has
consistently cited the oldest publications. In 1975 the median age of




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publications cited by U.S.-owned patents was just under 8 years; by
1986 the median age was slightly more than 6.5 years. In some rapidly growing fields such as biotechnology, recent patents cite research,
including basic research, of about the same age as the literature cited
in research articles on bioscience.
INDUSTRIAL INNOVATION IN THE UNITED STATES AND JAPAN

Before society benefits from the full value of R&D spending, the
knowledge gained must be converted into products, processes, and
services. Thus, the factors involved in this conversion are an important component of any comparison of innovative capabilities.
For the manufacturing sector overall, Japanese and American firms
that do R&D spent roughly the same proportion of net sales on R&D
in 1985 (2.7 percent in Japan versus 2.8 percent reported for company-funded R&D in the United States). Within manufacturing, however, the ratios of R&D to net sales vary. For example, ceramics and
iron and steel are more R&D-intensive in Japan, while the professional and scientific instruments sector is significantly more R&D-intensive in the United States.
Recent studies show that American and Japanese firms devote similar proportions of their R&D expenditures to relatively risky projects
(about one-quarter of their R&D to projects with less than a 50 percent estimated chance of success) and to long-term projects (almost
40 percent of R&D to projects expected to pay off after 5 years).
This similarity represents a significant shift for the Japanese from the
1970s, when Japanese industrial R&D was composed largely of lowrisk and short-term projects. Japanese firms appear to have changed
both the breadth and depth of their R&D and in these ways more
resemble American firms.
Nonetheless, differences remain in the composition of American
and Japanese industrial R&D. The U.S. firms studied devote about
two-thirds of their R&D expenditures to product technology (new
products and product changes) and about one-third to process technology (new processes and process changes). Japanese firms reverse
the proportions. This difference cannot be attributed simply to different industry mixes at the aggregate level. Within the chemicals industry, where firms in both countries emphasize product innovations
more than does the sample as a whole, U.S. firms still devote a greater share of their R&D to product than to process innovation than do
the Japanese.
American and Japanese firms need about the same time and incur
similar costs to carry out innovations based on technologies developed within the firm. Recent work suggests, however, that Japanese
firms enjoy advantages over U.S. firms with respect to innovations




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based on external technology, that is, technologies originating outside the firm. Many innovations based on external technology involve
new products that imitate others in important respects. The contrast
between Japanese and U.S. firms shows up particularly in the commercialization stage of the innovation process (beginning when the
product is developed and ending when it is introduced commercially), as distinguished from the R&D stages. In the United States the
commercialization of an innovation based on external technology requires more time and about as much money as the commercialization
of one based on internal technology. Japanese firms, however, are
able to commercialize innovations based on external technology
faster and at less cost than those based on internal technology.
Japan's advantage here depends on how many U.S. innovations are
based on external technologies. However, modifications of external
technologies are reported to be an important source of U.S. innovations. Efforts of Japanese firms to improve their S&T capabilities
largely involved catching up with U.S. firms. In these circumstances,
their greater efficiency in adapting external technology affords a clear
advantage. Yet this superior efficiency of Japanese firms in commercializing external technologies does not appear to be attributable
solely to the advantages of being a follower. In carrying out such innovation, they have been more likely than American firms to adapt
the imitated product significantly and reduce its production costs
substantially. The Americans seem more inclined to invest heavily in
marketing startup costs, emphasizing marketing strategies more than
technical performance and production cost.
The ultimate arbiter of the value of R&D strategies is the market.
Before examining how U.S. firms have fared in international hightechnology trade, however, a look at how the U.S. and Japanese governments develop their S&T policies—policies that influence the
S&T capabilities of industry—is in order.
GOVERNMENT RESEARCH POLICY IN THE UNITED STATES AND JAPAN

The Japanese government accounts for only 21 percent of its nation's R&D funding, but it nevertheless plays an important role in
science and technology. It identifies new directions for R&D efforts
and encourages R&D initiatives by industry through financial incentives, selective R&D funding of particular R&D projects, and the creation of special institutes. Japanese S&T policy develops from consultation and consensus. The Council for Science and Technology, the
primary authority for developing Japanese S&T policy, recommends
long-term national policy objectives but funds no R&D. It recently
identified the need for a basic shift in emphasis toward seeking creative, fundamental breakthroughs that benefit not only Japan but also




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the international community. Its latest recommendation stressed
basic research, greater involvement of foreign researchers, and industry and university cooperation.
Almost one-half of the Japanese Government's S&T budget (which
includes some expenditures that do not meet the narrower definition
of R&D) in 1985 went to the Ministry of Education, Science, and Culture (Monbusho), which administers Japan's national universities and
their affiliated research institutes. The Japanese approach (also used
in many European countries) provides long-term government support to public universities for faculty R&D activities. In contrast U.S.
Government agencies fund most university research on a shorter
term and competitive basis.
With 27 percent of the government's S&T budget, the Science and
Technology Agency funds and conducts basic and applied research.
It also directs the Japan Research and Development Corporation,
which encourages the commercialization of promising R&D developments at the national universities and research institutes.
The Ministry of International Trade and Industry (MITI) spent 13
percent of the government's 1985 S&T budget. While MITI wielded
substantial power over Japanese industry during the 1960s and early
1970s, controlling foreign exchange, technology licensing from
abroad, and tariffs, it has largely lost those powers. Currently, MITI
tries to influence the private sector through using its R&D funds to
leverage higher industrial R&D funding. Within MITI, the Agency for
Industrial Science and Technology (AIST) sponsors development of
technologies with potential commercial value, much of which is carried out in AIST-administered national and regional industrial research institutes. The AIST also administers special incentives, such
as conditional loans (which are included in the S&T budget) and tax
deductions for private-sector technology development.
The two countries also differ in how they carry out long-term S&T
planning. The Japanese Government has conducted major formal
forecasting exercises that included large sections of the industry, government, and academic communities in the forecasting process. Every
5 years Japan's Science and Technology Agency sponsors these forecasts, which combine the "science push" and "demand pull" perspectives on technological innovation. Among the areas ranked highest in
terms of future Japanese S&T needs in the most recent survey are
cancer; storage and disposal of radioactive solid wastes; automatic
protocol conversions to facilitate information flows between communication networks; advanced software verification technology for
rapid development of error-free, large software systems; antivirus
agents for treatment of viral diseases; and industrial application of
superconducting materials.




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The accuracy of forecasts that reach 30 years into the future is
open to question, particularly where unforeseen developments may
change opportunities. Nonetheless, the Japanese forecasts help establish R&D priorities. Furthermore, some observers say that thinking
about longer term applications encourages Japanese industry to monitor external research and more quickly adopt the findings.
It is not necessarily advisable, however, for the United States to
make its own 30-year forecasts. Such forecasts tend toward conservatism, fail to anticipate some of the more creative scientific advances,
and may lead to a consensus that encourages an excessively narrow
R&D focus. Rather, the decentralized U.S. system might benefit more
from involving potential users of basic and applied research in an
R&D agency's process of planning and setting priorities.
HIGH-TECHNOLOGY PRODUCTS AND U.S. TRADE
A product's life cycle and its manufacturing process affect its producer's ability to compete. The importance of performance versus
cost characteristics for marketing a product varies with the stage of
its life cycle. At the initial innovation stage, the producer's technological lead is the key factor in determining its competitive position. As
the initial demand is met and more competitors arise, cost and quality become much more important in generating sales. The location of
production can change during the stages of the product life cycle. At
the initial R&D stages, the availability of skilled technical labor is important. Later, R&D inputs become less important, and the usual determinants of production location come into play: wages, taxes, transportation, and access to markets. In rapidly changing technologies, a
product may never get to the mass production stage, or only be
mass-produced for a short time. Thus, the ability to shift quickly to
another product can be a critical competitive strategy.
Judging from the success of U.S. multinational firms in maintaining
world market shares, the diminished U.S. trade position may result
less from deficiencies in American technological leadership than from
other factors—productivity, wage rates, taxation, cost of capital, domestic inflation, and exchange rates. As described in earlier chapters,
many of these factors that affect cost and quality have recently
become more favorable to U.S.-based production. American firms
need a policy environment that helps them to benefit from the use of
their technologies wherever they produce. Improved protection of intellectual property in countries where such protection is weak can
help U.S. firms in this regard, and it can also encourage increased
U.S. investment in those countries.




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CHARACTERISTICS OF THE HIGH-TECHNOLOGY SECTOR

No commonly accepted definition of high-technology industries
exists. These industries are said to make significant use of scientific,
engineering, and other technical personnel and to invest in a greater
than average level of R&D funding, adjusted for industry size. A definition of high-technology industries based on these R&D-input criteria thus include industries that may differ in market structure, labor
composition and compensation, type of product, and the degree of
economies of scale. High-technology industries thus defined may also
vary substantially in rates of employment and output growth. One
study of the 1976-80 period found that some high-technology industries experienced employment growth in excess of 75 percent, while
other industries contracted their work force by 50 percent. Several
industries with rising levels of output showed slow or negative employment growth.
U.S. TRADE IN HIGH-TECHNOLOGY PRODUCTS

Some research distinguishes between the competitive position of
U.S. firms and that of the United States as a geographic location for
production. Companies that become multinational in their operations
reduce to some extent their dependence on home-country determinants of competitiveness. If home-country production becomes more
expensive relative to foreign production because of rapid inflation at
home, because the exchange value of the home country's currency
has risen, or because labor has risen in price or decreased in efficiency, the multinational firm has some opportunity to shift its production to locations in other countries.
The export shares of all U.S. firms and U.S.-based multinationals
were about equal in 1966 (about 17.5 percent of world exports), but
the multinationals subsequently maintained their share while that of
U.S. firms as a whole declined (to 14 percent in 1984), particularly
during the early 1970s. The parent firms of the U.S. multinationals
did not escape the forces that led to the fall in the U.S. export share,
but they fared better—the fall in the parents' share was less than that
of all U.S. firms. The success of exports from their foreign affiliates
was largely responsible for maintaining the multinationals' share of
world exports.
The distribution of exports among industries reveals the comparative advantages of the United States and its multinational firms. If the
multinationals' share of exports in an industry exceeds the export
share of all U.S. firms in that industry, U.S. multinationals are regarded as having a comparative advantage in that industry relative to
the United States as a country. Among the major industry groups,
the multinationals showed such comparative advantages in chemicals,




235

electrical machinery, and motor vehicles. Such advantages change
with the exchange rate and differences in productivity growth at
home and abroad.
Both R&D intensity and advertising intensity (i.e., marketing) seem
to be major factors in the comparative advantage of U.S. multinationals. Many studies associate R&D intensity with the comparative advantage of the United States as a country, and the same R&D intensities are even more strongly related to the comparative advantage of
U.S. multinationals.
The United States is relatively less export-oriented than other industrial nations within the Organization for Economic Cooperation
and Development (OECD). It has a large domestic market, and its
shares of OECD production substantially exceed its shares of OECD
exports. The United States also accounts for large shares of OECD
production across all sectors, even in those for which, based on the
structure of exports, it has no apparent comparative advantage.
High-technology goods account for an increasing share of U.S.
trade. Between 1981 and 1987, the high-technology share of U.S. exports of manufactures rose from 35 to 42 percent, and the high-technology share of imports increased from 22 to 25 percent. During the
1980s the combination of slower growth of U.S. exports of high-technology products and the steady increase of such imports led to a dramatic decline in the U.S. high-technology trade surplus. The sectoral
trade balance dropped in current dollars from $26.6 billion in 1981
to $3.6 billion in 1985, and to a deficit for the first time of $2.6 billion in 1986. In 1987 the trade balance in the high-technology products sector became positive again at $0.6 billion. Despite this decline,
U.S. trade performance in high-technology manufactures has been
stronger than in less technology-intensive products. The U.S. trade
balance in manufactures that are not high technology continued to
deteriorate, going from an $11.2 billion deficit in 1981 to a $138.3
billion deficit in 1987 despite the recovery in exports in 1986 and
1987.
The product groups making up the high-technology sector in these
trade statistics are defined at the three-digit standard industrial classification level. While these measures use a definition of high-technology goods that takes into account use of R&D-intensive inputs, each
group contains products of varying levels of technological sophistication. Thus, a declining trade balance in a particular product group
may in fact reflect an increase in imports of the less sophisticated
goods in the product group, rather than changes in the most technologically advanced products. An illustration of this effect is the large
increase in U.S. imports of telecommunications products following
the deregulation of the telecommunications industry and the breakup




236

of American Telephone and Telegraph on January 1, 1984. Far East
nations other than Japan accounted for almost 30 percent of U.S. imports of telephone and telegraph equipment in 1986, and these
countries supply mostly low-cost, low-technology telephone instruments.
The emergence of the East Asian newly industrializing economies
(NIEs) as major suppliers of products at the low-technology end of
high-technology product groups has eroded the U.S. surplus in hightechnology trade. American imports of high-technology products
from the East Asian NIEs grew faster between 1980 and 1986 than
overall U.S. imports of high-technology products. In 1986, East Asian
NIEs accounted for about 18 percent of U.S. imports of these products, making these countries key participants in U.S. high-technology
markets.
The semiconductor market illustrates the complexities of identifying the role of technology in U.S. competitiveness. Semiconductors
are diverse products, ranging from standardized commodity chips to
chips custom-designed for specific applications. Technological forces
have dictated marketing strategies since the beginning of the industry. The average useful life of many of these products is short. For
example, the product life cycle for dynamic random access memory
(DRAM) chips has been about 3 years since the early 1970s. Another
characteristic of the semiconductor industry is rapid price reductions.
Several factors complicate any assessment of the competitive position of the United States or of U.S. firms in semiconductors. Trade
data reflect intracorporate trade in both imports and exports; U.S.
offshore manufacturing, primarily in Southeast Asia, generates about
one-half of U.S. trade in semiconductors. In addition, some of the
largest U.S. producers consume their output internally, and reliable
production data are difficult to obtain for such captive producers. In
1978, companies headquartered in the United States (excluding captives) produced 55 percent of global semiconductor revenues; in
1986 they produced 40 percent. Shipments from U.S.-based plants
(including captives) held steady at nearly 60 percent of global semiconductor shipments until after 1982, but fell to 52 percent in 1985.
Several factors explain most of the U.S. semiconductor industry's
losses of market share in the mid-1980s: faster growth of the Japanese home market, which is supplied primarily by Japanese firms; exchange-rate movements; and worldwide overcapacity and aggressive
Japanese pricing, reflected in the 1986 U.S. determinations of semiconductor dumping. The U.S. market share has eroded in products
that require efficient manufacturing that can be provided by state-ofthe-art process technology. The erosion is most extreme in the
market for DRAMs, which demand high yields of good chips in large




237

quantities for economic production. By contrast, U.S. companies'
market share has held up better where product design and customer
relationships are primary and yields and price secondary; examples
are microprocessors and microcontrollers and application-specific integrated circuits.
POLICY ISSUES OF THE 1980s AND BEYOND
Over the past 20 or so years, U.S. policies have evolved in light of
a growing consensus that spending on science and technology is an
investment in the Nation's future. Policymakers in the 1960s and
1970s sought to use S&T to meet national needs, e.g., in health,
safety, environmental quality, energy, and transportation, and to
foster continued economic growth. Policy debates focused on the
role of the Federal Government in meeting these needs, the role of
particular sectors such as small business, and the ability to use Federal Government policies to speed commercial implementation of new
technologies.
There has been broad endorsement of Federal support for basic
research. The Ford and Carter Administrations both adopted the
view that the substantial decline in Federal support of basic research
since the late 1960s, if allowed to continue, would have grave consequences for the United States. Both Administrations viewed basic research as a long-run national investment, and both backed these
views with real growth in Federal basic research budgets. The current
Administration continued providing substantial support for basic research, with a 52 percent increase in real expenditures between fiscal
years 1981 and 1989 in the civilian agencies and 48 percent growth
over all agencies. The Administration reemphasized the importance
of basic research with a proposal in 1987 to double the budget of the
National Science Foundation (NSF) over 5 years. The Congress supported this effort and increased funding for NSF by 10 percent in
fiscal 1989, in excess of the 2 percent overall increase in domestic
discretionary spending.
Other Federal policies in the 1970s focused on applied research
and development directed at specific civilian technologies. Experience with many Federal Government efforts to accelerate the development of civilian technologies were expensive and unsuccessful in
producing commercially viable processes and products (particularly
in the energy sector after the decline in oil prices). As a consequence, the major civilian S&T policy initiatives of this Administration and the Congress in the early 1980s moved away from direct
Federal intervention at the later stages of the innovation process. Instead, the policy focus has been on stimulating private investments in




238

R&D through increased incentives provided by taxes, antitrust exemptions, and strengthened protection for intellectual property
rights. In addition, the Federal Government has paid increased attention to incentives for commercial use of R&D that it has financed for
its own purposes.
During the 1980s there has been greater awareness of the international scope of science and technology. Some policy initiatives have
emphasized strengthening protection of intellectual property internationally and the need for international research cooperation. During
the latter half of the 1980s, concerns about U.S. competitiveness
have also revived interest in direct Federal support of civilian technologies, particularly funding for industrial R&D cooperatives.
Use of government funds to support particular industries or technologies raises questions of how winners and losers are picked and
whether R&D investments that industry is unwilling to make are to
be encouraged. Complicating the issue is the fact that U.S. taxpayers
are already directly funding nearly one-half of the Nation's R&D.
INCENTIVES FOR PRIVATE INDUSTRY

Recent S&T policy initiatives have sought to strengthen private incentives to invest in R&D and innovation, recognizing that the private sector is ultimately the arena in which research results must be
commercially implemented.
Taxes

The Economic Recovery Tax Act of 1981 included a temporary 25
percent tax credit for incremental spending by industry on qualified
research expenditures, over and above the average level of such
sending for the previous 3 years. Some early studies concluded that
this tax credit did not have a strong effect on R&D spending. They
attributed the weak effects in part to uncertainty about duration of
the credit and to the low effective rate of incentive (because credits
are only available for increased spending over a rolling base that
changes annually). Small business proponents have also pointed out
the credit's limited applicability to newly established firms that are
just beginning to fund R&D. The credit was to expire in 1986, but
the Tax Reform Act of 1986 extended it at a reduced rate of 20 percent. The Congress has again extended the credit through 1989.
Antitrust

Policy debates in earlier years weighed incentives for innovation
against the possibility for reduced domestic competition. More recently, policymakers have analyzed antitrust and competition issues in
terms of global markets, and they are more willing to permit cooperation in the pre-production stages of research and development.




239

Cooperative research among firms has been going on in the United
States on a limited scale for many years. The National Cooperative
Research Act of 1984 enables firms to cooperate on research in the
developmental stages before product sales competition occurs. Under
the act, industrial research consortia can register their formation with
the Department of Justice and the Federal Trade Commission, thereby avoiding treble damages if the joint venture is later found to violate antitrust statutes. Actions under joint R&D ventures are not
deemed to be per se violations of any Federal or State antitrust laws,
but they are to be judged on a rule-of-reason basis. More than 100
such consortia have registered since the law was enacted,
Intellectual Property

The Omnibus Trade and Competitiveness Act of 1988 gives holders of U.S. process patents greater legal rights to block imports or
collect damages from persons who import into the United States
products produced overseas using—without permission—processes
patented in this country. The United States is also pursuing improved protection of intellectual property through its bilateral science and technology agreements, bilateral trade agreements, and,
multilaterally, in the Uruguay Round of negotiations under the General Agreement on Tariffs and Trade. Domestically, the Drug Price
Competition and Patent Term Restoration Act of 1984 extended the
length of patent protection for pharmaceuticals to compensate for
regulatory delays in getting them to market.
New technologies sometimes raise questions about the most appropriate form of protection for their underlying ideas. In semiconductor designs, the matter was resolved through creation of special copyright-like intellectual property protection with a duration of 10 years.
Incentives in the semiconductor design legislation for international
reciprocity in such protection have led to efforts in Japan, the European Community, and the World Intellectual Property Organization
to protect semiconductor designs in this way.
Federal patent and copyright protection and State trade secrecy
laws encourage private investment in R&D and in commercializing
new technologies. Nonetheless, limits to such protections exist that
reflect competing social objectives. The patent system guarantees inventors the right to exclude others from unauthorized use of their
inventions, but only for a limited time (17 years from the date the
patent is issued in the United States) and in return for disclosure.
Trade secrecy has an unlimited duration in the United States, but the
owner must safeguard the information against disclosure and is vulnerable to those who independently think of the same idea or who
obtain it by legal means, such as reverse engineering. Copyright protection extends longer (typically, life of the author plus 50 years in




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the United States) than patent protection, but it covers only the form
of expression, not the underlying concept. Unlike a patent, a copyright is no protection against an independently developed work.
The tradeoff between encouraging creation of knowledge through
the grant of exclusive property rights and permitting early and widespread use of knowledge at a low price has been long debated. These
tradeoffs between incentives to invest and losses from restricted dissemination are reflected in the limited duration of legal protection
given to intellectual property. Concern that firms would use exclusive
patent rights to create or extend product monopolies has also led to
restrictions on the use of patents, although some scholars have
warned that fears of monopoly extension have led to unwarranted restrictions on the legitimate use of patents to capture economic returns attributable to the invention.
Other limitations of intellectual property protection hinge on the
subject matter to be protected. For example, many observers view
patent protection for manufacturing processes as more difficult to
enforce than patents for products. Process innovations are often
based more on superior integration of existing elements than on elements that are clearly new, and they may not meet the criteria for
patentability. In addition, infringement of process patents is often
less easy to detect and to demonstrate than infringement of product
patents.
Studies have found variations in the importance of patent protection to firms that innovate; patents are most important for pharmaceutical and chemical companies. The ability to protect intellectual
property is not, however, unimportant in providing a competitive advantage in product and process innovation. Rather, patents are not
the only way to gain this advantage. For example, a recent survey of
U.S. firms in a variety of industries found that lead time, secrecy, and
moving down the learning curve quickly (so costs fall as cumulative
output and production experience increase) also played important
roles in protecting the competitive advantage of an innovation. From
a policy perspective, however, government cannot readily provide
these other forms of advantage; a firm's learning, secrecy, and production experience must come from within.
FEDERAL FUNDS FOR RESEARCH AND DEVELOPMENT

The Federal Government and the private sector support all stages
of R&D, as shown in Chart 6-3. Development expenditures take the
largest share of each sector's R&D spending and basic research the
smallest. The government's share of national R&D expenditures has
varied between 46 and 66 percent, depending on national priorities
and the role of Federal R&D in meeting them.




241

Chart 6-3

Federal and Private Funding of Research and Development

Billions of 1982 dollars
110

100
90
80
70
60
50
40
30
20
10

1 953

1 956

1 959

1 962

1 965

1 968

1 971

1 974

1 977

1 980

1 983

1 986

Note. -Private includes a small amount of State and local government funds.
GNP implicit price deflator used to deflate expenditures.
Data for 1988 are estimates.
Source: National Science Foundation.

The level of Federal R&D funding has varied substantially as priorities changed. As shown in Chart 6-4, Federal obligations for R&D in
constant dollars declined after 1967 and only recovered their earlier
peak in 1987. This slump is attributable primarily to changes in the
R&D budgets of the National Aeronautics and Space Administration
(NASA) and the Department of Defense (DOD), which together accounted for 80 percent of Federal R&D funds in the early 1960s. The
rapid growth in Federal R&D began in the late 1950s following the
Soviet Union's launch of Sputnik in 1957. High levels of R&D spending supported NASA's successful Apollo program to land a man on
the Moon in 1969. While DOD again showed large R&D funding
growth during the 1980s as part of this Administration's emphasis on
national defense, NASA's R&D funding has not regained its former
levels. The Department of Health and Human Services, in contrast,
generally showed a slow, steady growth throughout the period. The
bulge in R&D funding for the Department of Energy (and its predecessors) during the latter part of the 1970s reflects the ill-advised at-




242

tempt to seek S&T solutions to the energy crisis and the later efforts
of this Administration to cut back expensive demonstration projects.
Federal Obligations for Research and
Development by Major Agency
Billions of 1982 dollars

Department of
Health and
Human Services

30 -

20 -

10

0
1955

1958

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

Fiscal Years
1

Data prior to 1979 are for Department of Health, Education, and Welfare.
Data for 1955-73 and 1974-76 are for Atomic Energy Commission and Energy Research and
Development Administration, respectively.
Note.—Data for 1987 and 1988 are estimated.
GNPjimplicit price deflator used to calculate 1982 dollars.
Source: National Science Foundation.
2

Although not apparent in agency R&D totals, the recent growth in
DOD's R&D has significantly offset the increasing emphasis on basic
research in the civilian agencies. Over the past 10 years basic research in the civilian agencies has grown from 23 percent of their
R&D to 40 percent. At the same time, however, DOD's share of Federal R&D increased from 45 percent to 67 percent, and DOD spends
both a smaller and a declining share of its R&D on basic research. In
1978 basic research accounted for 4 percent of DOD's R&D budget;
by 1988 its share had fallen to 2 percent. As a result, Federal spending on basic research remained at 14 percent of total Federal R&D.
Several rationales justify Federal support of R&D. One is that
direct government support is appropriate where incomplete property
rights lead the private sector to underinvest in R&D; this rationale is




243

the primary economic reason for Federal support of basic research.
Another is that the pure advancement of knowledge—with or without
some commercial payoff—is worthwhile (this rationale is perhaps best
applied to some forms of space exploration). In other cases, social
objectives, such as higher levels of education, are furthered by funding for faculty and student R&D. Still another rationale for Federal
R&D support stems from the need of the government to use the
knowledge.
Relatively small amounts of Federal R&D are funded under the
narrow rationale of insufficient private investment in R&D. Taking all
basic research as a proxy for that R&D where the private sector has
inadequate incentives to invest, about 14 percent of Federal R&D is
funded on the basis of this market-failure rationale. If university R&D
is the proxy, the proportion is 12 percent of Federal R&D. Instead,
as shown in Chart 6-4, most Federal R&D funds go to meet the
needs of the agencies themselves. The agencies were created to respond to specific social needs, in such areas as defense, space, and
health, where private actions alone would not be sufficient. They rely
on R&D to help them meet their goals or to provide them with technologically advanced products where they are the dominant purchaser. In such a situation, R&D is a means of fulfilling the agencies'
roles in society; support of R&D is not an end in itself.
FEDERAL TECHNOLOGY TRANSFER

Because of the large direct Federal role in R&D, policy officials
have recently paid particular attention to incentives for the transfer
of the results of federally sponsored R&D to industry.
Government Patent Policy

Some results of federally funded research are patentable, and government policy on ownership and use of these patents has recently
changed to offer greater incentives for their commercialization. The
earlier policy of many agencies was to patent their inventions and to
provide nonexclusive licenses to encourage wide use of their research
results. Agencies found little demand for nonexclusive licenses.
Legislation in 1980 permitted contractors engaged in federally
funded R&D to obtain patent title when they are small businesses,
universities, or nonprofit institutions. A 1983 Presidential memorandum extended the contractor title policy to firms of all sizes (unless
contrary to law) and removed a previous restriction mandating that a
Federal agency should normally retain title to inventions that concern
public safety, health, or welfare. Amendments to the patent title legislation in 1984 extended its coverage to university and nonprofit operators of government-owned, contractor-operated research facilities




244

and in 1986 to some cases of government-owned, government-operated facilities.
A policy of offering contractors exclusive rights to patents arising
from government-sponsored R&D is likely to be the most effective
way of ensuring that research results will be brought to the point of
private commercial use. Indeed, without exclusive rights, private entrepreneurs are likely to shy away. The post-patent stages of the innovation process may involve substantial investment in additional research that may not be patentable or easily protected. In addition,
contractors may have used their proprietary information in carrying
out R&D for the government, making it difficult or impossible for another firm to exploit the patent without using that information.
The 1980 legislation permitting universities to own patentable inventions flowing from federally funded research appears to have
stimulated both invention and university-industry cooperation. The
number of university patents increased from 230 in 1976 to approximately 900 in 1987, of which universities are licensing almost
one-third to private firms for development and potential commercialization. Universities attribute the significant increase in
business-sponsored research on their campuses to this legislation.
Some observers also view the growth in the U.S. biotechnology industry as largely a product of the university-industry cooperation
made possible by this legislation.
Cooperative Research Involving Industry, Federal Laboratories, and
Universities

Policymakers also recognized the importance of incentives as they
tried to improve the linkages between researchers in government laboratories and private industry by allowing laboratories to keep a portion of the revenues from license fees. The Technology Innovation
Act of 1980 (the Stevenson-Wydler Act) explicitly promotes civilian
technological innovation, by making the transfer of federally owned
technology to industry and to State and local governments an objective of all Federal laboratories.
The Federal Technology Transfer Act of 1986 amended the Stevenson-Wydler Act to encourage further the transfer of Federal technology to industry. Federal laboratories could perform cooperative
research with outside parties, as long as such research was consistent
with the mission of the laboratory, and permit private companies to
obtain in advance rights to patent technology developed under the
cooperative agreements. The act also provided that laboratory directors could negotiate licensing agreements arising out of other, noncooperative research at the laboratory. It enabled an agency to retain
any royalties resulting from commercialization of inventions from its
laboratories, and it directed the agency to share those royalties with




245

the individuals responsible for the invention and with its laboratories.
Preliminary indications of the effect of these two laws are favorable.
Inventions reported by government scientists rose significantly in
fiscal 1988 compared with fiscal 1987, and Federal laboratories have
entered into almost 100 cooperative research agreements with private
companies under the Federal Technology Transfer Act.
The Federal Government has also encouraged new institutional arrangements for cooperative research. These cooperative arrangements have several motivations and objectives, including cost-sharing, reducing the barriers to commercialization of technology developed in universities or government laboratories, making more effective use of the scarce and valuable talent and facilities of government
laboratories, and broadening the scope of firms' exposure to external
technical advances. As an example of the new institutional arrangements, in 1986 NSF made the first 6 of what has since become a total
of 18 awards for Engineering Research Centers located in schools of
engineering that also have support from private industry. Based on
strong industry and university interest, NSF has developed a similar
program for science and technology centers and announced the first
11 awards in December 1988.
Some critics have voiced concerns that cooperative research involving industry and either universities or government laboratories may
divert these institutions from their proper social objectives. They fear
that university researchers will develop an excessively near-term
focus and neglect longer term research, or that government-funded
laboratories may be diverted from their primary goals in order to do
research on commercially profitable products. But it may also turn
out that researchers still do longer term research, although in areas
with market potential.
A basic issue raised by concerns over research diversion involves
the opportunity cost when researchers cooperate with industry. That
is, if researchers are diverted, which type of research has the greater
value to society? Some academic research driven purely by the interests of the scientist leads to important breakthroughs. The R&D
process does not move in a single direction, however, and basic research is not the only source of ideas. Important feedbacks occur
throughout the R&D process; social problems and technological limitations can stimulate major fundamental research. The heart of the
issue lies in identifying the effect of cooperative research on the composition and quality of R&D. Two final points are that the sponsoring agency must ensure that government funds are used only to further the objectives of the agency and, for Federal laboratories, that
technology transfer is now part of their mission.




246

A different problem arises from the limitations of relying on researchers alone to become entrepreneurs or product champions.
They may not have the skills or interest in turning research results
into commercial products. What is needed is industry awareness and
anticipation, while the research is being planned, of how the results
of longer term, fundamental research could lead to product or process improvements. Cooperative research across sectors can increase
this awareness, as industry identifies areas of long-term research in
which it will invest.
FEDERAL SUPPORT FOR INDUSTRY

Industry now receives one-half of all Federal R&D funds. The U.S.
Government has longstanding relationships with industry in space
and defense to meet agency goals. Some observers cite the commercial success of the U.S. aviation industry as justification for Federal
support of other industries. But as a counter-example, spillovers
from defense research into the civilian sector appear to have fallen
off since the 1950s. The underlying question is whether federally
funded R&D in industry can both meet government needs and benefit society in other areas as well through its use in commercial products and processes. This question is not easily resolved, and policy
officials are still examining existing government-industry relationships and developing new ones to permit broad use of Federal R&D
results.
Industrial Base

One troublesome facet of government-industry cooperation becomes evident when foreign competition threatens a U.S. industry
that is deemed to be important for national security. This competition may result from unfair trade practices, exchange-rate changes,
cost of capital, or superior foreign products or production capabilities. In recent years two examples have arisen of Federal R&D directed at improved manufacturing capabilities for strategically important
U.S. industries—machine tools and semiconductors. In both cases
foreign competitors undercut the competitive position of U.S. firms,
and the industries petitioned the U.S. Government for relief. Both industries directly or indirectly raised national security arguments to
support the need for continued domestic production. In both cases
the government granted some import relief and supplemented it with
support, through DOD, for research to improve the manufacturing
capabilities of the industry.
The National Center for Manufacturing Sciences (NCMS), established in 1986, is an R&D consortium focusing on manufacturing
technologies of all types. Although U.S. manufacturers of machine
tools are involved, membership is much broader, including the users




247

of manufacturing technologies in the automotive, defense, and consumer products industries and suppliers to the machine tool industry.
The NCMS contracts out its research to industry, academia, and
government. The NCMS receives about $5 million a year from DOD
and plans for $45 million a year from private sources.
SEMATECH (semiconductor manufacturing technology initiative)
is a newly established consortium of U.S. semiconductor producers,
equipment suppliers, and users. SEMATECH is developing the next
generation of process technology for the production of semiconductors, where U.S. firms have lost market share to Japan (especially in
DRAMs) and for which efficient production processes are critical for
commercial success. SEMATECH is partially supported with Federal
funds, with DOD authorized to provide $100 million of support in
fiscal 1989.
The existence of NCMS and SEMATECH raises fundamental questions about DOD's role in supporting civilian commercial technologies. The Department clearly needs semiconductors and advanced
machine tools and, in special circumstances, may not want to rely on
foreign suppliers. But DOD's demand for these products is only a
small portion of the total market, and DOD alone does not need and
cannot support a large domestic production base. Requiring DOD to
provide R&D support for an industrial base larger than it needs,
however, diverts its resources from military technologies that the private sector would never fund on its own.
Cooperative Research and Development

Cooperative research among competing firms is an organizational
form of research that some argue deserves special Federal support.
Many firms benefit from cooperative research on generic projects,
the argument states, that individual firms lack incentives to finance
themselves. Yet the fact that firms share the costs reduces the need
for government support. The argument is most convincing where
members of the cooperative cannot readily appropriate research results, so that they lack sufficient incentives to invest. For example, incentives to invest could be inadequate if intellectual property protection is incomplete, if the results cannot be kept secret, and if participants will not gain lead time.
Cooperative R&D is an obvious way for companies to overcome
the limitations of R&D budgets. It can eliminate purely duplicative
research of individual companies and free up resources for additional
research. It can marshal more researchers and equipment to work on
a problem. Cooperative R&D can also pursue several possible solutions simultaneously, thereby reducing the risk of finding no feasible
solution at all.




248

Formal modes of cooperation are cumbersome to arrange, difficult
to administer, and often only modestly successful. Competitors often
bring different R&D capabilities and knowledge to a proposed cooperative R&D effort. If participants pool personnel and knowledge,
those with the better staff and equipment are often reluctant to join.
The participants' ability to exploit the fruits of cooperative R&D
projects often differs, which makes the selection of appropriate
projects and the optimal sharing of R&D costs touchy subjects.
Competitors can address these problems in several ways. The
Microelectronics and Computer Technology Corporation (MCC), a
private R&D cooperative established in 1982 without government
subsidy, serves as an example. The corporation performs advanced
long-term R&D in microelectronics and computer development; it
does not develop products or processes. Members do not pool proprietary research and face no restrictions on their own individual research. The private sector financing and governance provide market
checks against MCC becoming irrelevant to industry needs and inefficient in its management.
Members of MCC have adopted a simple rule for assigning R&D
costs: initial participants in a program pay an equal share; later
participants may pay a larger amount. Because of the difficulty of
predicting how beneficial some technology will be to a particular
member, participants make an additional payment for a license to use
a technology coming out of their program, and they share in the royalties. Participants also receive a 3-year head start in access to technologies before those technologies are opened to other MCC shareholders.
Alternative cooperative approaches involve either formal technology licensing or informal know-how trading after the research is completed. Know-how trading takes place when scientific and technical
personnel obtain information from colleagues at other firms, possibly
competitors, and provide other information in turn, possibly at a different time. The technical participants judge the quality of information given and received and, over time, ensure that exchanges are of
comparable value. This phenomenon partially explains the rapid
leakage of technology out of innovating firms, and also explains the
incentives for firms to fund R&D despite the leakage—they get knowhow in return.
Given the many ways in which industry generates and shares
knowledge without government support, proposals for Federal support of cooperative industry research should identify the circumstances that make purely private solutions infeasible and the extent
to which the social benefits of government support exceed the public
costs. Government funding certainly makes a consortium more attrac-




249

tive to industrial participants if the money comes with few strings attached. However, government funding raises such issues as which
firms are eligible for membership in the consortium, under what conditions nonmembers can obtain access to the R&D results, when foreign members are eligible for membership, and how scarce government resources should be allocated among various consortia.
Perhaps a more useful and appropriate government role than funding would be to gather information on successful organizational and
contractual solutions to the typical problems in cooperative industry
R&D. And, where industrial R&D consortia operate in areas where
the Federal Government supports R&D, these consortia should be eligible to compete for R&D support on equal terms with other research institutions.
POTENTIAL POLICY PROBLEMS

Some emerging issues pose potential problems for the continued
success of the American S&T enterprise; among them are the politicization of the allocation of Federal R&D funds, the degree to which
the country benefits from government R&D spending, and the adequacy of the supply of scientists and engineers to meet the needs of
the U.S. economy.
Political Pressures in Research Funding

Decisions on R&D funding are increasingly subject to political
pressures. These pressures are brought to bear by industries that do
not receive Federal R&D funds at the level or in the form they want,
by research organizations that do not obtain their "share" or do not
receive funds for the specific purposes they want (e.g., facilities), and
by regions that want the resources associated with Federal R&D,
The location in which R&D is carried out is not a new concern for
science policymakers. For example, the geographic distribution of
National Science Foundation grants was an issue in the Congress
before the organization was established. However, Federal research
funds are increasingly earmarked for particular institutions in the
budget and appropriations process, rather than allocated by agency
decisions. One estimate showed that earmarked science projects had
increased from 19 in the 1979-80 sessions of the Congress to 121 in
the 1985-86 sessions, with recipient institutions rising from 12 to 60.
Such political intervention is not surprising; locations in which research is conducted gain from Federal funds regardless of any potential commercial benefits that may result from the research. Earmarking appears to benefit institutions that have difficulty obtaining Federal funds. One study found that the top 20 universities (in terms of
Federal R&D support), which got 41 percent of total research funds,
received only 1.3 percent of earmarked funds in 1986. Universities




250

ranked below the top 100 received 14 percent of the total R&D funds
but 71 percent of earmarked funds, suggesting that research institutions lobby for earmarked Federal research funds that they could not
obtain otherwise.
The potential problem is that political earmarking will waste R&D
resources. Once the evaluation criteria have been established, researchers should compete on merit—not their lobbying skills.
Access to U.S. Science and Technology

Concerns for both national security and economic competitiveness
have generated interest in setting appropriate conditions for foreign
access to American S&T. On the competitiveness side, the primary
consideration is to ensure that the Nation benefits from its R&D investments, particularly those publicly funded.
Both this Administration and the Congress have sought to balance
international S&T relationships through measures that ensure comparable access to government-sponsored or government-supported
R&D programs and facilities. All nations should eliminate R&D arrangements that discriminate against researchers based only on their
nationality. Comparable access across all countries will not suffice to
ensure that research opportunities afforded by such access will be
used, however. The degree of use of foreign research opportunities
depends on individual perceptions of research-facility quality, the existence of language barriers, the costs of carrying out research
abroad, and the individual researcher's expertise. Several U.S. Government agencies are taking steps to increase American use of worthwhile foreign research opportunities. These agencies plan to monitor
and provide information on research opportunities abroad, fund
more international research, and provide scientists with foreign language training. These measures will benefit the United States as
American researchers take greater advantage of the increasingly
strong S&T capabilities of other nations. As in trade, solutions to a
perceived lack of reciprocity or imbalance should end up helping instead of harming the United States.
Policies to ensure that the United States benefits from its government-supported R&D investments have to take into account the
openness of much of the U.S. research system. Academic research is
traditionally published, and draft material circulates in informal research networks. Cooperation among nationals of different countries—formal or informal, in U.S. laboratories or abroad—can improve the productivity and quality of the research. Such cooperation
benefits all participants. At times, however, participants may be able
to appropriate the research results, e.g., through patents, and put
them into commercial use. The U.S. Government now includes intel-




251

lectual property protection provisions in its international S&T agreements to guard against this eventuality.
Strong domestic research cannot ensure that the United States will
remain the location of production for goods derived from that research. Once the country has made an R&D investment, it is in society^ interest to allow that knowledge to be incorporated into products, wherever they are produced. The best way to ensure that U.S.
firms and the American public benefit from this R&D is to give firms
a policy environment conducive to innovation.
New Scientists and Engineers

Recent demographic trends have raised doubts about the adequacy
of the future U.S. science and engineering work force. The size of
the 16- to 18-year-old population of the United States peaked in the
mid-1970s, and it is expected to continue to decline until the mid1990s. Each successive college-age cohort contains a larger proportion of ethnic and racial minorities, which historically have been
poorly represented in science and engineering. By the year 2000,
more than 25 percent of the college-age population will be black or
Hispanic. The math and science performance of U.S. students at the
precollege level is relatively poor, whether that performance is measured against other countries or within the United States over time;
this showing is a matter of concern. These trends taken together
could impose restraints on the supply of newly trained scientists and
engineers unless educational and employment patterns change.
The downturn predicted for the number of bachelor degrees in science and engineering based on past participation rates has not yet
come about. The United States is already halfway through its demographic decline in the college-age population, and the number of college graduates with first degrees in the natural sciences and engineering (excluding social and behavioral sciences) has continued to
increase. Much of this continued production of bachelor degrees in
science and engineering is attributable to the increased participation
of females and increased enrollments in computer sciences.
Foreign students play a large role in U.S. graduate education, although at the undergraduate level they account for less than 4 percent of the degrees in science and engineering. In 1987, foreign students received 30 percent of U.S. doctorate degrees in science and
engineering, up from 21 percent in 1978. Within engineering, foreign students received the majority of U.S. doctorates in 1981, and
by 1987 their share reached 55 percent. Two-thirds of these foreign
engineering students are from Asia. Students from Taiwan, South
Korea, and India accounted for 44 percent of the foreign engineering
doctorates in 1987, illustrating the importance of American institutions in training scientists and engineers from developing countries.




252

The U.S. higher education system has become a major producer of
international human capital.
Ability to meet the longer term needs of the U.S. economy for scientists and engineers will depend on the basic factors that affect their
supply. One factor is pay for scientists arid engineers at different
degree levels and compared with job opportunities in nonscience
fields. Another factor is the flow of undergraduates, which depends
on a supply of qualified high school graduates. Longer term enlargement of the base of potential scientists and engineers also depends
on the recruitment of women and minorities into these fields.
CONCLUSION
Because the 1980s have seen strengthened incentives for the private sector to put the results of R&D into commercial use, major
changes in the role of the Federal Government do not appear to be
needed. Nonetheless, the United States needs to improve its understanding of the factors—institutional relationships as well as incentives—that determine how effectively the S&T system works. The
Nation needs to ensure that efforts to benefit particular groups do
not hinder the efficient deployment of S&T resources. In this way,
the United States can continue to stimulate its scientific and technological genius, which for so long has benefited both the Nation and
the world.




253




CHAPTER 7

The U.S. Economy in the 1980s and
Beyond
WHEN THE PRESIDENT TOOK OFFICE in January 1981, the
condition of the U.S. economy was bleak. Sixteen years of inappropriate monetary and fiscal policies and two oil price shocks had left
the economy in the grips of stagflation. Inflation and unemployment
rates had followed rising trends between 1965 and 1981. For example, at the expansion peak in the fourth quarter of 1969, the unemployment rate was 3.5 percent and the inflation rate was 5.1 percent.
By the third quarter of 1981, another expansion peak, the unemployment rate had climbed to 9.2 percent and the inflation rate had risen
to 9.4 percent. At the same time, the trends in real output and productivity growth had faltered. Between the expansion peaks of the
second quarter of 1953 and the fourth quarter of 1969, real gross
national product (GNP) and manufacturing productivity growth averaged 3.2 percent and 2.3 percent per year, respectively. Between the
fourth quarter of 1969 and the third quarter of 1981, GNP and manufacturing productivity growth averaged 2.6 percent and 2.2 percent
per year, respectively, while between the fourth quarter of 1973 and
the third quarter of 1981, GNP and manufacturing productivity
growth averaged only 2.2 percent and 1.5 percent, respectively.
As the President leaves office in January 1989, the economy is in
its seventh year of expansion. This is the longest peacetime expansion in recorded U.S. history and one marked with notable achievements. Real output has grown 4.2 percent per year on average between the fourth quarter of 1982, and the third quarter of 1988.
Nonfarm employment has increased by almost 19 million jobs
through November 1988. The inflation rate has fallen from double
digits and has averaged about 3.3 percent in the past 5 years. Manufacturing productivity has increased at an average annual rate of 4.4
percent, almost three times as fast as its average growth between the
fourth quarter of 1973 and the third quarter of 1981.
Economic performance in 1988 surpassed the expectations of many
forecasters, who first expected the October 1987 stock market crash
and an apparently large inventory overhang to dampen growth, and
who later predicted rising inflation. Real output grew an average 2.9




255

percent during the first three quarters of the year, inflation was only
3.9 percent, and the unemployment rate fell to 5.3 percent, among
the lowest in 14 years. Moreover, the composition of real output
moved into better balance, with business fixed investment and exports both posting impressive gains.
The prosperity of the past 6 years is in no small measure attributable to the economic policies fostered and implemented by this Administration. Tax reform has improved the incentives to produce,
save, and invest. Slower growth of Federal spending has freed resources for the private economy. Prudent monetary policy has lowered and stabilized the rate of inflation. As long as policymakers
maintain open and flexible markets, enhance economic stability by
avoiding short-run stabilization policies and higher tax and inflation
rates, rein in Federal spending, and avoid protectionism, the economy can continue to demonstrate good economic performance in the
years ahead. With this proviso, the economic outlook for the United
States is bright.
THE LOWERING OF INFLATION IN 1981 AND 1982
A cornerstone of this Administration's economic policy has been a
reduction in the rate of inflation. Given the poor economic performance of the 1970s, the Administration believed that strong and durable gains in living standards could not be achieved unless inflation
was stable, and ultimately zero. The Administration encouraged and
supported Federal Reserve efforts to reduce the growth of money in
order to achieve a lower inflation rate. This policy support built
public credibility in the Federal Reserve's disinflation policy.
Monetary policy actions between 1965 and 1980 had shattered the
Federal Reserve's credibility as an inflation fighter. On average, the
money supply grew more rapidly than the rate consistent with low inflation. For example, M2 grew at an annual average rate of nearly 9
percent between 1965 and 1980. Given that the velocity of M2, which
is defined as the ratio of nominal GNP to M2, has exhibited no secular trend during the postwar period, inflation would not have surged
during the late 1960s and the 1970s if M2 growth had stayed closer
to the 3 percent trend growth of real GNP. Compounding the inflationary effects of fast money growth during the second half of the
1970s was an increase in the average growth rate of the velocity of
M2 as nominal interest rates rose in response to continued inflation.
Thus, a given money growth rate was translated into even faster inflation.
Not only was average money growth excessive between 1965 and
1980, but it was also highly variable (Chart 7-1). Large changes in




256

money growth whipsawed the economy alternately into boom and
bust periods. During 1967, 1971, and 1975, the growth rate of M2
approximately doubled from the previous year, while during 1966,
1969, 1973, and 1976-78, M2 growth reversed course, falling by
about one-third to one-half of its previous value.
Actual and Target M2 Growth
Percent change, fourth quarter over fourth quarter

12
10

i
1965

1967

i

i

1969

i

i

1971

i

i

1973

i
1975

I
1977

i

1979

i

i

1981

i

i

1983

1985

i

i

I

1987

I
1989

Note.—Target ranges set for 1975 to 1989 only.
Source: Board of Governors of the Federal Reserve System.

Excessive and highly variable money growth clouded the public's
understanding of the intentions of the Federal Reserve. Since 1975
the Federal Reserve has announced annual growth targets for most
of the monetary aggregates. The Federal Reserve designs the target
ranges to be consistent with its ultimate policy objectives of achieving
price stability in an environment of sustainable real output growth. In
recent years the Federal Reserve has also announced its expectations
of real output growth, inflation, and the unemployment rate for the
coming or current year. These growth targets and expectations of
economic activity, along with policy announcements of foreign governments, set the pattern of expectations affecting, for example, interest rates, exchange rates, and other prices. During the second half
of the 1970s the Federal Reserve's policy objectives were to moder-




257

ate real output growth and reduce the rate of inflation, as evidenced
by a gradual lowering of the target ranges during this period. Yet the
Federal Reserve consistently allowed the monetary aggregates to increase faster than their maximum targeted growth rates. As the rate
of inflation steadily rose in the late 1970s the credibility of the Federal Reserve's announced disinflation policy was severely eroded.
This loss of credibility was potentially important. Because the
public did not believe that the Federal Reserve was serious about
controlling inflation, it did not alter its behavior to be consistent with
a lower rate of inflation; public expectations of continued rapid inflation were reflected in wage and loan contracts, spending habits, and
asset prices. These expectations raised the probability that the output
loss and unemployment from a disinflationary policy would be greater than from a credible policy.
The Federal Reserve demonstrated its determination to reduce inflation in 1981. Although the growth rate of M2 changed little from
1980, the growth rate of the narrow aggregate Ml was reduced from
7.5 percent between the fourth quarter of 1979 and the fourth quarter of 1980 to 5.2 percent over the four quarters of 1981. At the
same time, the Federal funds rate rose from a then recent low of
about 9 percent in July 1980 to more than 19 percent in June 1981.
The effect of this monetary tightening on the rate of inflation was
dramatic, coming as it did after the brief 1980-81 recovery and reinforced by the largest decline in velocity of the postwar period. From
a peak of 12.1 percent in the fourth quarter of 1980, the rate of inflation fell to 3.6 percent in the fourth quarter of 1982. Although the
1981-82 recession is often called the most severe in 50 years, its
effect on the real economy was less than that of the 1973-75 recession. Real GNP fell 3.2 percent between the expansion peak in the
third quarter of 1981 and the recession trough in the fourth quarter
of 1982, compared with a total decline of 4.3 percent during the
1973-75 recession; the unemployment rate rose 3.2 percentage
points over the same period, slightly less than its 3.4 percentage
points rise during the 1973-75 recession. The output and employment losses during the 1981-82 recession were the price paid for the
failure to correct the inflationary excesses of the previous 15 years,
and are properly viewed as the downpayment for the current expansion.
THE EXPANSION IN PERSPECTIVE
An important legacy of this Administration is the refocusing of
economic policy. The Administration deemphasized short-run stabilization policies; worked to provide a stable policy environment with




258

market-based incentives for productive behavior, including low inflation; and attempted to extricate private markets from burdensome
regulations. The strength and durability of the current expansion
bear testimony to the soundness of these policies. In December 1988
the current economic expansion entered its seventh year, making it
the longest peacetime expansion and the third longest on record.
Most impressively, the inflation rate has not risen during this expansion, but has remained in the neighborhood of 3 to 4 percent.
Indeed, this President is the first President in 36 years to leave office
with both a lower inflation rate and a lower unemployment rate than
when he assumed office.
The performance of the economy during the current expansion
can be evaluated in several ways. One is to compare the performance
with that of major U.S. trading partners. Another is to compare U.S.
economic activity during this expansion with economic activity in previous expansions. Apart from the obvious advantage of indicating
how domestic economic activity compares with activity abroad, the
international comparison can hold constant many common factors influencing economic activity worldwide. The disadvantages of international comparisons are the lack of an historical perspective and the
failure to hold constant expansion timings and institutional arrangements such as labor market practices across countries. The comparison with previous U.S. expansions offers this time perspective, indicating to what extent economic activity during the current expansion
is better or worse than during past expansions. But this comparison
does not hold constant the various exogenous forces, such as
droughts, changes in foreign oil supplies, and the impact of foreign
government policies, on the U.S. economy. Neither comparison is superior to the other; each has its own strengths and weaknesses. For
this reason, both comparisons are employed below.
GROWTH IN REAL OUTPUT

The growth of real output during this expansion compares favorably with growth abroad. Between 1982 and 1987 real output growth
in the United States was greater than the average output growth of
the other six economic summit countries—France, West Germany,
Italy, the United Kingdom, Japan, and Canada—and greater than the
average growth of every summit country except Japan and Canada.
In contrast, U.S. output growth in the 1960s and 1970s was below
the average of the other six summit countries and well below that of
Japan, France, Italy, and Canada.
The good performance of the U.S. economy during this expansion
is not simply a matter of an early start at recovery. The better U.S.
performance also appears during the 1981-87 and 1983-87 time pe-




259

riods. Instead, the above-average performance of the U.S. economy
during this expansion reflects the vigor of the free-market system and
economic policies aimed at promoting long-run growth and stable
prices. Indeed, as it has become clear that this Administration's policies are paying off, other countries have rushed to adopt similar policies. For example, tax reform is underway in Japan, West Germany,
the United Kingdom, and several other countries as well. Government has reduced intervention in the marketplace in France, West
Germany, and the United Kingdom through privatization of major
publicly owned firms and steps toward deregulation of key markets.
The growth of real GNP in the United States between the fourth
quarter of 1982 and the third quarter of 1988 totaled almost 27 percent, greater than real GNP growth in all but one postwar U.S. expansion. This solid growth reflects the long duration of the current
expansion, which sets the current expansion apart from almost all
U.S. expansions. Average real GNP growth during the current expansion is remarkably similar to that of the past five expansions, excluding the brief 1980-81 episode (Table 7-1). Real GNP has grown an
average of 4.2 percent per year between the fourth quarter of 1982
and the third quarter of 1988, virtually matching the 4.3 percent average of the previous expansions. The growth of other aggregate
measures during this expansion is similar to the expansion average.
Real final sales have grown 3.7 percent per year compared with the
average of 3.9 percent, and total employment has grown slightly
faster than the average. Real personal consumption expenditures
have grown close to the expansion average of 4.1 percent, dispelling
the notion that the current expansion has been entirely consumerled.
SAVING AND INVESTMENT

Although similar in aggregate terms, output and spending during
the current expansion differ in composition from the average of past
expansions. These differences are best described by examining the
balance between saving and investment, which is the reverse side, although not the mirror image, of output and spending behavior. The
national income and product accounts identity between income and
output can be rewritten as an identity between gross saving and investment. Gross saving is the sum of personal, business, and governmental saving, and gross investment is the sum of gross private domestic investment and net foreign investment.
One difference between the current and past expansions is the behavior of the Federal Government budget deficit. Between calendar
years 1980 and 1983, the Federal budget deficit rose from 2.2 percent to 5.2 percent of GNP on a national income and product ac-




260

TABLE 7-1.—Comparison of Current and Past Expansions
[Average annual percent change, except as noted]
Total expansion
Item

First 2 years

Second 2 years

Current1

Average

REAL GNP

4.2

4.3

5.8

4.8

Final sales

3.7

3.9

4.2

4.1

4.0

4.1

4.8

6.1
-1.6
9.9

6.7
4.2
8.7

Personal consumption expenditures
Nonresidential fixed investment
Structures
Producers' durable equipment
Residential fixed investment

Third 2 years

Average

Current1

Average

2.8

3.9

4.1

3.3

3.5

3.6

3.4

3.6

4.9

4.4

3.0

2.7

2.7

12.3
3.1
17.9

5.9
2.3
8.8

19
-8.3
1.0

9.2
6.3
11.1

8.8
.9
11.8

5.2
10.0
3.1

Current

Average

Current

9.2

5.8

21.0

13.0

8.5

-2.2

. ...

7.7
11.5

9.1
7.8

5.9
20.6

6.6
9.5

1,5
6.1

11.5
4.8

17.5
8.1

13.3
8.4

Government purchases of goods and
services
Federal
Defense
Nondefense
Excluding CCC
State and local .

2.8
1.8
4.3
-5.5
2.2
3.6

1.3
-.9
17
2.6
2.6
3.8

2.5
1.9
5.8
-7.6
4.1
2.9

.7
16
-3.2
6.1
6.0
3.5

5.7
6.4
6.0
7.8
25
5.1

1.8
5
-1.3
,7
.4
4.1

-.1
35
.7
-16.5
5.5
. 2.5

6.0
7.8
10.2
.7
1.2
4.2

4.2

3.8

5.8

4.4

4.1

3.1

2.6

3.0

-105.6

1.7

-106.5

-47.6

17.4

48.5

17.9

3.3

4.4

3.5

3.8

2.9

5.4

3.5

5.9

2.6
5.7
4.4

2.5
7.2
3.0

3.3
10.4
5.7

2.4
8.7
4.3

2.1
1.4
3.6

2.7
5.6
2.6

2.4
5.5
3.7

2.0
3.7
.2

.6

2.3

.1

3.1

1.9

1.2

-.2

-.7

Exports of goods and services
Imports of goods and services

Final sales to domestic purchasers
Change in net exports of goods and
services (billions of 1982 dollars)

-15.6

-2.3

-12.0

ADDENDA:
GNP implicit price deflator
Employment including resident Armed
Forces
Industrial production
Manufacturing output per hour
Real compensation per hour, nonfarm
business sector
1

Through 1988 III.

Note.—Average expansion includes expansions beginning in 1954 II, 1958 II, 1961 I, 1970 IV, and 1975 I. {Expansions are as
determined by National Bureau of Economic Research.)
Sources: Department of Commerce, Department of Labor, and Board of Governors of the Federal Reserve System.

counts basis. This increase had cyclical and structural components.
The cyclical components included greater income-support payments
and lower income tax receipts during the 1981-82 recession. The
structural components were the buildup in national defense spending
and tax changes in the Economic Recovery Tax Act of 1981 (ERTA)
and the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA).
For example, real national defense purchases rose at an annual average rate of 8.2 percent between the fourth quarter of 1980 and the
fourth quarter of 1982, the strongest growth since the Vietnam war
buildup, and at an annual average rate of 5.9 percent during the first
4 years of the current expansion. On balance, expenditures increased
as a percent of GNP and receipts as a percent of GNP remained
roughly constant. The increase in the Federal budget deficit accounted for most of the decline in the gross saving rate during this period.
This increase is shown in Chart 7-2 by the difference between gross
saving and gross private saving.




261

Chart 7-2

Gross Saving and Investment as Percent of GNP

Percent of GNP
20

19

18
17

16
15

w

14
Gross
Private
Domestic
Investment

13
12

f,.,,
1947

i i I i i i i I
1952

1957

1962

1 t I 1 I I I

i I
1967

1972

1977

1982

1987

Note.— Data for 1988 based on average of the first three quarters.
Source: Department of Commerce.

Between calendar years 1984 and 1987, the Federal budget deficit
averaged 4.4 percent of GNP, but a combination of strong income
growth and spending restraint has reduced the deficit to 2,8 percent
of GNP during the first three quarters of 1988. Total expenditures as
a percent of GNP have fallen from 23.7 percent in 1984 to 23.0 percent through the first three quarters of 1988, while total receipts as a
percent of GNP have increased from 19.2 percent to 20.1 percent of
GNP over the same period. The fiscal 1990 budget proposal indicates a continued decline in the Federal budget deficit to reach a balance by fiscal 1993.
A second difference in the composition of real output during this
expansion, relative to past expansions, is the decline in the U.S. trade
balance. This decline reflected faster real income growth and a greater expected real, after-tax return on capital in the United States relative to the rest of the world. The rise in the real value of the U.S.
dollar in foreign exchange markets reinforced these factors. Real net
exports fell $154.1 billion between the fourth quarter of 1982 and
the fourth quarter of 1986, compared with the average $1.8-billion




262

increase during the first 4 years of the past five expansions, excluding the brief 1980-81 episode. During the first 4 years of the current
expansion, real import growth was almost double and real export
growth was less than one-half of the average of past expansions. The
deterioration in the trade balance is mirrored by the decline in U.S.
net foreign investment during this period, shown in Chart 7-2 by the
difference between gross saving and gross private domestic investment. Between 1982 and 1986 net foreign investment fell from about
zero to —3.4 percent of GNP. This capital inflow more than offset
the decline in the gross saving rate after 1982.
The swing in the trade balance is also reflected in the greater
growth in domestic demand relative to that of domestic output
during this period. Growth in real gross domestic purchases averaged
5.3 percent per year during the first 4 years, a full percentage point
faster than the growth in real GNP.
Since the fourth quarter of 1986 the decline in the real U.S. dollar
exchange rate and the convergence of real income growth in the
United States and abroad contributed to the $48.5-billion improvement in real net exports, as strong export growth more than offset
continued import growth. Additional improvement in the trade balance can be expected in the future.
A final difference in the composition of real output during this
expansion involves stronger growth of gross private domestic investment relative to past expansions. Real gross private domestic investment grew at an average annual rate of 10.5 percent during the current expansion, more than a full percentage point faster than the average of past expansions.
Among the components of gross private domestic investment, real
residential .fixed investment has grown during the current expansion
at a 9.2 percent average annual rate, considerably above the expansion average of 5.8 percent. The stronger growth reflects the early
effects of ERTA and TEFRA, which lowered the cost of capital for
multifamily housing construction as well as for nonresidential structures. Real nonresidential fixed investment has grown about one-half
of a percentage point less during this expansion than the 6.7 percent
average annual growth during past expansions, but the difference appears in nonresidential structures. The annual average 1.6 percent
decline in structures mostly reflects lower spending on petroleum exploration and drilling in response to the oil price decline in 1986,
although recent weakness in nonresidential structures spending reflects the removal of incentives for investment in structures in the
Tax Reform Act of 1986. Real producers' durable equipment expenditures have grown over a full percentage point faster than the
expansion average. A number of studies suggests that this strength is




263

not attributable to the effect of ERTA tax incentives on the cost of
equipment capital; TEFRA removed most of these incentives. Instead, much of the strength in equipment spending can be attributed
to a lower rate of inflation, which lowered the effective tax rate and
raised the expected after-tax return on equipment. Moreover, falling
computer prices, the necessity of modernizing to remain competitive
in world markets, and the effects of rising aggregate demand for U.S.
manufactured goods in the past 2 years have also contributed to
stronger equipment spending.
Considerable public attention has been devoted to the effect of
Federal Government budget deficits on private investment. A popular view is that large Federal budget deficits during this expansion
have absorbed a substantial share of gross private saving, thereby
raising real interest rates and crowding out or displacing private investment. This view fails to account for foreign capital inflows. Gross
saving minus net foreign investment equals total saving of the public,
private, and foreign sectors in the United States. It also equals, apart
from a statistical discrepancy, gross private domestic investment.
When these foreign capital inflows are included, nominal gross private domestic investment as a percent of nominal GNP has been average during this expansion, judged by historical experience, while
real gross private domestic investment as a percent of real GNP is
greater than its postwar average. This evidence suggests that concerns about high real interest rates and large Federal budget deficits
crowding out residential and nonresidential investment, thus far in
this expansion, appear to have been misplaced. Of course, the relevant comparison would use what would have happened had the Federal budget deficit not been as large, a subject of some dispute, but it
is clear that gross private domestic investment did not deviate from
historical norms.
This strong growth in gross nonresidential fixed investment ignores the fact that a growing share of investment during the past 22
years has simply replaced worn-out capital, and has not added on net
to the national capital stock. The share of gross nonresidential fixed
investment in real GNP has risen from 11.3 percent in 1966 to more
than 12.2 percent during the first three quarters of 1988. But net
nonresidential fixed investment, which represents new additions to
the Nation's capital stock after replacing worn-out capital, has fallen
from 4.8 percent of real GNP to 2.0 percent in 1987. The reasons for
the divergence between gross and net nonresidential fixed investment are not entirely clear. As discussed in Chapter 1, the decline in
the growth of net investment is likely to have been overstated.




264

EMPLOYMENT AND UNEMPLOYMENT

The United States continues to create employment opportunities at
an enviable pace. Total employment has grown at an average rate of
2.6 percent per year between November 1982 and November 1988,
slightly faster than the expansion average. Nonfarm payroll employment has grown by nearly 19 million jobs, or a 3.2 percent average
annual rate, matching its expansion average. Within nonfarm payrolls, goods-producing employment has grown an average 1.9 percent per year during this expansion, almost a full percentage point
slower than the expansion average. Service-producing employment
has grown 3.7 percent, slightly stronger than the expansion average.
The differential between goods- and services-producing employment
reflects the better productivity of the goods-producing sector and the
long-term shift toward services consumption.
Strong economic growth during this expansion has improved employment opportunities for all major demographic groups. Between
November 1982 and November 1988 civilian employment of adult
males has grown at an average annual rate of 2.2 percent, adult females at 3.4 percent, blacks at 4.4 percent, and Hispanics at 6.6 percent. Employment growth has been exceptionally strong for black
teenagers—6.8 percent at an average annual rate. This gain is almost
three times that in black teenage employment during the 1975-80 expansion.
The impressive employment growth during this expansion is reflected in unemployment rates. Since the expansion began, the unemployment rate has been cut by one-half, from 10.6 percent to 5.3
percent in November 1988. During 1988 the unemployment rate fell
to its lowest level in 14 years. Moreover, the employment-to-population ratio reached an all-time high of 62.9 percent in 1988. Unemployment rates have declined substantially for all major industrial
and occupational categories and for all major demographic groups.
Unemployment rates of women, which averaged more than 25 percent higher than for men during the 1970s and early 1980s, dropped
below men's rates in early 1982. Since November 1982 unemployment rates for women have fallen by 4.9 percentage points and have
been roughly equal to unemployment rates for men since 1981. Black
and Hispanic unemployment rates have both shown large declines,
and, although still high, current unemployment rates for these
groups are the lowest recorded since 1974.
Strong growth of employment in the United States surpasses that
of major U.S. trading partners. Employment has grown considerably
faster in the United States than in the other six summit countries. Between 1982 and 1987 civilian employment in the United States has
grown at an average 2.5 percent annual rate, faster than in any other




265

summit country. Canada had the second fastest growth at 2.4 percent, Japan and the United Kingdom were tied at about 1.0 percent
growth, and the rest were under one-half of 1 percent. Indeed, more
than twice as many jobs have been created in the United States since
1982 as in the other six summit countries combined. Faster employment growth in the United States was also evident in the 1981-87
and the 1983-87 periods.
The reduction in the U.S. unemployment rate has been particularly
impressive when compared with that of other industrial countries.
Since 1982 the U.S. unemployment rate has declined substantially,
while unemployment rates in Western Europe, for example, are
among the highest of the postwar period. The U.S. unemployment
rate is now lower than that of any of the other summit countries
except Japan, a country with different labor market practices. In contrast, the U.S. unemployment rate was generally above unemployment rates in Western Europe between 1960 and 1980.
The distribution of economic growth among regions of the United
States can vary with relative price changes and regional cost competitiveness and economic bases. Early in this expansion, the industrial
Midwest continued to suffer employment problems related to ongoing structural change. The energy-producing region, primarily the
Southwest, suffered when oil prices fell in 1986, while employment
growth was strong along both coasts. Currently, most regions of the
country, except oil-producing regions, have experienced good job
growth. Between September 1982 and September 1988 employment
has grown by more than 5 percent in 43 States, and by more than 10
percent in 39 of those States. In 1987, employment was above its average 1982 level in 46 States and above its average 1979 level in 44
States.
Much has been made about the United States turning into a Nation
of low-wage, low-skilled workers. Although it is difficult to test this
hypothesis directly, evidence suggests that this notion is incorrect.
Employment growth in the current expansion has been strongest in
the higher paid, higher skilled occupations. Two-thirds of the increase in employment has occurred in the higher paying occupations.
More than 85 percent of the increase in full-time employment has occurred in occupations with annual salaries of $20,000 or more in
1987 dollars. Only 12 percent of the increase in employment has occurred in the lowest paid, low-skilled service occupations. Of the new
jobs created during this expansion, 92 percent are full-time jobs. Further, 80 percent of part-time workers report that they choose to work
part time.
Economic growth has improved employment opportunities for all
groups, especially women. Since 1980 the percentage of women em-




266

ployed in traditionally high-paying, male-dominated occupations has
increased dramatically. For example, women now hold 46 percent of
all jobs for accountants and auditors, up from 38 percent; 20 percent
of all jobs for lawyers, up from 14 percent; 20 percent of all jobs for
physicians, up from 13 percent; and 13 percent of all jobs for architects, up from 8 percent. Earnings of women have also grown strongly. Weekly earnings of female workers have grown 27 percent, while
male earnings have grown 19 percent. Thus, the gap between female
and male earnings has narrowed. Moreover, real earnings of women,
which stagnated in the 1970s and early 1980s, have increased 7 percent since 1982.
Blacks and Hispanics have also made gains in job quality, although
their employment in the higher paid occupations is still relatively
low. While overall employment in the higher paid white-collar occupations has increased by 17 percent during this expansion, employment of blacks in these occupations has increased by 36 percent and
of Hispanics by 60 percent.
INFLATION AND PRODUCTIVITY GROWTH

Perhaps the greatest achievement of economic policy during the
current expansion has been the stability of the inflation rate, albeit at
an historically high rate. Chart 7-3 displays the relationship between
the duration of an expansion in months and the difference in consumer price inflation rates between expansion peak and recession
trough for all postwar expansions except the brief 1980-81 episode.
Prior to the current expansion, the longer an expansion lasted, the
greater was the increase in the inflation rate. In contrast, the current
expansion has witnessed a slight decline in the rate of inflation, instead of an increase comparable to the 3.6 and 4.8 percentage point
increases experienced during the third and first longest expansions
of the postwar period. The stability of the inflation rate during the
current expansion is not attributable to weaker economic performance compared with the other expansions. Real output in the current
expansion has grown about the same as the average 4.3 percent
growth of the five previous expansions, excluding the brief 1980-81
episode.
The GNP implicit deflator has grown at an annual average rate of
only 3.3 percent during this expansion, more than a full percentage
point less than the average of past expansions, and more than 4 percentage points less than during the 1975-80 expansion. The GNP
fixed-weight price index increased at an average annual rate of 3,6
percent during this expansion, slightly faster than that of the GNP
implicit deflator. The difference between the growth rates of the implicit deflator and the fixed-weight price index indicates a shift in the




267

Chart 7-3

_.

_

.

, , ,.

A.

_

Expansion Duration and Inflation Change

Percentage point change in inflation from trough to peak1
6

5

"~

Feb61-Dec69 I

Mar75-Jan80 I
Oct49-Jul53 •
May54-Aug57 •
Nov70-Nov73 •

3

2

Nov82-Nov8821

-2 _
0

Apr58-Apr601

20

40

60

80

100

120

Duration of Expansion in Months
1

1nflation is measured by the 12-month percent change in the consumer price index for urban consumers.
November 1988 is the latest month in the expansion for which data are available.
Sources: Department of Labor and National Bureau of Economic Research.

2

composition of output away from that of the 1982 base year. Because
spending tends to shift toward lower priced goods and substitutes for
existing goods over time, the implicit deflator usually grows less rapidly than the fixed-weight index. In the current expansion, a major
shift in output has involved increased purchases of computers, whose
price index is falling because of strong technical innovation in that
industry.
The inflation record of the United States during this expansion
also compares favorably with those of the major U.S. trading partners. The average rate of consumer price inflation in the United
States during this expansion is lower than the average among the
other six summit countries, and lower than the average rate of inflation in France, Italy, the United Kingdom, and Canada. Consumer
price inflation in the United States has averaged 3.3 percent per year
between 1982 and 1987, while the average of the other summit countries was 4.5 percent. The relatively better inflation performance of




268

the United States also appears in the 1981-87 and 1983-87 time
periods.
The stability of the inflation rate compared with the experience of
previous expansions ultimately is attributable to the prudent economic policies pursued during the current expansion. In the long run, the
price level cannot rise continuously unless accommodated by monetary policy. In the short run, however, changes in the velocity of
money can complicate control of the price level. A decline in velocity
during 1982 aided the disinflation efforts of the Federal Reserve, and
additional declines in 1985 and 1986 restrained the rate of inflation.
These unusual declines in velocity during the 1980s are not completely understood. Such factors as the introduction of nationwide
negotiable order of withdrawal (NOW) accounts, the removal of interest rate ceilings, and lower nominal interest rates, may have played
a role, but the best research in this area has not disentangled their
effects.
The surge in manufacturing productivity growth demonstrates the
benefits of lower inflation, market-based tax incentives, and more rigorous foreign competition. Manufacturing productivity has grown at
an average rate of 4.4 percent, almost one and one-half times faster
than the expansion average. After growing at an annual average rate
of 5.7 percent in the first 2 years, manufacturing productivity has
maintained a steady 3.6 percent annual average growth in the past 4
years.
Current estimates of the Nation's manufacturing productivity
growth during this expansion have matched those of its major trading
partners. After taking into account faster growth in foreign labor
compensation, however, unit labor costs have grown considerably
slower in the United States than among its major trading partners.
Combined with the weaker U.S. dollar in foreign exchange markets,
this better unit labor cost performance means that the competitive
position of U.S. manufacturers has improved significantly during the
past 3 years.
Productivity growth in the nonfarm, nonmanufacturing sector has
been considerably weaker than manufacturing productivity growth
during this expansion. Productivity in the nonfarm business sector
grew at an annual average rate of 1.8 percent during this expansion,
about the same as the expansion average. The possible reasons for
the relatively slow productivity growth in the nonfarm, nonmanufacturing sectors are discussed in Chapter 1.
MONETARY POLICY

The Federal Reserve has faced two main challenges in formulating
monetary policy during the current expansion. One was conducting




269

monetary policy without a reliable relationship between the monetary
aggregates and economic activity. The short-run relationship between
various monetary aggregates and income and interest rates, which
began to break down in the mid-1970s, became further distorted by a
combination of financial deregulation, disinflation, and possibly other
unknown factors. Monetary policy actions tended to react more to
developments in the real economy than to deviations of the monetary
aggregates from their announced targets.
This control problem only exacerbated the overriding challenge
facing the Federal Reserve, however, which was demonstrating its resolve to work toward price stability. Thus far in the current expansion, the Federal Reserve has successfully kept inflation from rising.
Still, inflation remains above the Administration's goal of a zero average rate.
This partial success should not be taken to imply that developments in the real economy are the most efficient or the most reliable
guides for making monetary policy. Using developments in the real
economy as a guide to policymaking poses at least three risks. One is
overreacting to short-run changes in economic indicators that are
either temporary or illusory, to be revised away with more complete
data. This overreaction adds needless and inefficient volatility to
markets. Another risk is that policy will be based on imprecise or
spurious economic models. During the 1960s and 1970s the Federal
Reserve appeared to act as if there was a reliable short-run tradeoff
between changes in inflation and unemployment, as embodied in the
Phillips curve. The Federal Reserve appears to have reverted to this
same kind of policy guide during the past few years. A third risk is
that monetary policy will be based upon a shifting set of indicators,
thereby obscuring the intent of policy. To succeed over the long
term, monetary policy needs to take a long-term perspective, avoid
reacting to erratic short-run developments, and avoid misleading the
public about the direction of current policy.
THE ECONOMY IN 1988
At the beginning of the year many economic forecasters saw two
major impediments to growth in 1988. One was the stock market
crash in October 1987, which erased an estimated $650 billion of
household wealth and which, before any offset from lower interest
rates, raised the cost of capital to firms. The diminished value of consumer wealth was expected to lower real personal consumption expenditures, other things being constant, while the higher cost of capital was expected to depress real business fixed investment. The
other impediment was the apparently large inventory overhang at




270

year-end. The large $67.1-billion increase in real business inventories, combined with slower spending resulting from the decline in
stock prices, was expected to depress output growth in early 1988.
Between early October 1987 and early November 1987, the consensus forecast for 1988 real GNP was revised down from 2.8 to 1.9 percent annual average growth, with only 1.4 percent annual average
growth expected in the first half.
In fact, economic performance during 1988 considerably exceeded
most expectations. Real GNP grew at an annual average rate of 2.9
percent during the first three quarters of 1988, and 3.2 percent
during the first half. The stock market crash had a small impact on
real personal consumption expenditures, which, after a weak fourth
quarter in 1987, rose at an annual average rate of 3.8 percent during
the first three quarters, and the personal saving rate averaged about
1 percentage point higher than in 1987. Little impact was evident on
real business fixed investment, which grew at an annual average rate
of 8.8 percent during the first three quarters, with producers' durable
equipment expenditures up nearly 15 percent. Real net exports increased $32.1 billion during the first three quarters of the year,
almost double their improvement during all of 1987. Nonfarm payroll employment increased by 3.4 million persons through November
1988, and real disposable personal income increased 3.5 percent on
an average annual basis through the first three quarters of the year.
Corporate profits after taxes, with inventory valuation and capital
consumption adjustments, rose an average 3.9 percent, after 0.2 percent in 1987. Consumer prices, excluding food and energy, increased
4.6 percent during the first 11 months of 1988, slightly above the average of the past 5 years.
The growth in real GNP would have been stronger had it not been
for the prolonged drought, which affected much agricultural production during the summer. Crop and livestock losses amounting to
$12.3 billion during the year are expected to lower real GNP growth
in 1988 about 0.7 percentage point, on a fourth-quarter-over-fourthquarter basis, and temporarily to boost consumer food prices 1 percentage point.
THE IMPACT OF THE STOCK MARKET CRASH

It is now evident, more than 1 year later, that the stock market
crash had little noticeable impact on U.S. economic activity. At a rudimentary level, little effect might have been expected because the
stock market is not a particularly accurate predictor of economic activity. During the postwar period before 1987, about twice as many
declines as recessions occurred in the stock market. Although by this
measure the odds of recession in 1988 were 50-50, many economic




271

forecasters were convinced that the magnitude of the decline, the
largest since the crash in 1929, raised the probability of recession.
On a more fundamental level, little effect should have been expected
because economic activity was strong at the time of the crash and because Federal Government policies and institutions prevented the
crash from escalating into a recession.
Changes in stock prices can affect real output growth through two
main channels. One is personal consumption expenditures. Consumers generally are thought to take a long view, spending not according
to their current income but according to their expected lifetime consumable resources, including both human and nonhuman wealth
components. Human wealth is the present discounted value of expected future after-tax labor income, and nonhuman wealth is the
consumer's expectation of the long-run or permanent value of his or
her current net financial and tangible assets. A drop in the value of
corporate equity holdings that is expected to be permanent, all else
being constant, will lower consumption, while a transitory drop will
not affect consumption.
At the end of the third quarter of 1987, nonhuman wealth of consumers amounted to $15.1 trillion, with corporate equities outside of
pension funds worth about $2.7 trillion or 18 percent. At the end of
the fourth quarter of 1987, holdings of corporate equities by households had fallen by about $650 billion, most of which reflected capital losses. A common estimate of the marginal propensity to consume real permanent nonhuman wealth is about 4 cents for every
dollar of nonhuman wealth, which implies that real personal consumption expenditures should have fallen about $25 billion or about
1 percent before other factors are considered. Real personal consumption expenditures during the fourth quarter of 1987 fell by
about one-half of this amount, and have grown at an annual average
rate of 3.8 percent during the first three quarters of 1988. The personal saving rate rose 2 percentage points in the fourth quarter of
1987, and has averaged almost 1 percentage point higher in 1988
than in 1987. In the aggregate, therefore, apparently consumers initially believed that only part of the stock market decline was permanent. Indeed, improvement in the overall stock price indexes during
1988 indicates that they were correct.
A second channel through which the stock market can affect real
output is business investment. The stock market provides an up-tothe-minute estimate of the value of thousands of publicly traded
firms. When the profits of a firm are expected to rise faster than in
the past, the share price of the firm will also rise to reflect the greater expected value of the firm. At times, the stock market's valuation
of a firm will differ from the replacement cost of the firm—what it




272

would cost to rebuild or replace the firm, hire equally competent
personnel, and rebuild the firm's goodwill. Modern theories of investment posit that, in general, a new firm will be started or new investments will be undertaken by an existing firm when the firm's
market value is greater than its replacement cost. Declines in stock
prices, all other things being constant, depress investment.
Business investment did not fall in the fourth quarter of 1987, and
continued to grow rapidly in 1988, suggesting that the impact of the
stock market crash was small. During the first three quarters of 1988,
real business fixed investment rose an average of 8.8 percent at an
annual rate, unchanged from 1987. The reason why business investment did not collapse is that the stock market recovered some of its
losses during the year and the decline in interest rates after the crash
lowered the replacement cost of capital and offset some of the initial
decline in stock prices.
The response of the economy to the 1987 crash, compared with its
response after the 1929 crash, highlights the benefits that can be
achieved when the Federal Government follows a proper course.
Two differences of major importance emerge for the short-term adjustment of the economy, one affecting the exchange rate and one
affecting the general conduct of monetary policy. In addition, differences in trade policy and taxation occurred in the periods following
the two declines, as did differences in institutional arrangements affecting the financial system, built-in stabilizers, and other devices that
reduce the risk of a severe contraction.
Immediately following both stock market crashes, the Federal Reserve acted to increase bank reserves. Major differences in monetary
policy came later. A slowing in the decline of economic activity, visible in industrial production and personal income by the spring of
1930, was turned around by restrictive monetary actions. In 1929-33
the Federal Reserve allowed the money stock to fall by almost onethird, adding an extreme deflationary burden to any remaining effect
of the crash. Attempts by money holders to shift from bank deposits
to currency drained reserves from the banking system. By failing to
offset the sequence of reserve drains, the Federal Reserve permitted
large numbers of banks to fail, with severe effects on confidence and
anticipations. In marked contrast, the Federal Reserve in 1988 first
absorbed the additional reserves it had provided in timely response
to the October crash, and through 1988 held money growth within
its pre-announced growth range.
In 1929 the United States was on a gold standard, with exchange
rates fixed against foreign currencies and gold. Under that regime,
the deflationary effect of the crash and monetary restriction fell
mainly on U.S. markets for goods and labor. Prices and wages had to




273

fall. Because money wages adjust slowly, a decline in prices raised
real wages and lowered employment. Adjustment to the deflationary
impulse was achieved by a downward adjustment of U.S. output and
spending and by reductions in employment. In 1987, in contrast, the
U.S. dollar was allowed to respond flexibly to market forces. Flexible
adjustment in the real value of the dollar facilitated the adjustment of
costs of production, and of the relative prices of domestic and foreign goods and assets, buffering the effects of the stock market crash
and other events on U.S. markets for goods and labor.
Trade policy also differed following the 1929 and 1987 stock
market crashes. Unlike today's emphasis on free trade, the United
States in 1930 intensified protectionist policies with the passage of
the Smoot-Hawley Act. International trade collapsed as foreign countries retaliated with their own protectionist measures, lowering world
efficiency and incomes. In contrast, the United States and Canada in
1988 completed negotiation of the Free-Trade Agreement, committing both countries to the elimination of most remaining barriers to
trade. This step and the President's rejection of strongly protectionist
measures gave assurance that the United States did not intend to
repeat the mistaken trade policies of the interwar period.
Another difference in the aftermath of the 1929 and 1987 stock
market crashes can be found in tax policy. In 1932 President Hoover
requested and received a large tax increase to balance the growing
Federal Government budget deficit. This policy was, of course, the
wrong one to request during a recession. In late 1987 the Administration and the Congress achieved modest reductions in the budget
deficit for fiscal 1988 and 1989 from their projected baselines, but
the last phase of the personal income tax reductions embodied in the
Tax Reform Act of 1986 was allowed to take effect. Although partially offset by increases in corporate taxes, the personal income tax cut
helped to limit any possible damage from the crash to real output.
SOURCES OF DEMAND

The composition of demand in 1988 continued the trends begun
in 1987. Real gross nonresidential fixed investment and exports continued to grow rapidly. Spending restraint reduced real Federal Government spending on goods and services, freeing resources for the
private sector. Consumer spending on goods and services continued
to grow moderately, and the average personal saving rate during the
first three quarters of 1988 was 0.8 percentage point higher than the
unusually weak rate of 1987.
Gross nonresidential fixed investment rose at an annual average
rate of 8.8 percent during the first three quarters of 1988, unchanged
from 1987. All of this growth was accounted for by gross producers7




274

durable equipment spending, which rose at a 14.9 percent annual average rate. Every major component of gross producers' durable
equipment grew strongly: information processing and related equipment rose 18.9 percent; after little growth in 1987, industrial equipment increased 13.9 percent; and transportation and related equipment grew 18.7 percent.
Spending on nonresidential structures fell an average 6.3 percent
per year during the first three quarters of 1988, with all of the decline ( — 22.4 percent) in the first quarter. Most of the decline appeared in nonresidential buildings, partly because of the elimination
of tax incentives in 1986, although investment in mining exploration,
shafts, and wells remained weak in response to the continued decline
in the relative price of oil. Adjusted for inflation, the refiners' acquisition cost of imported crude oil fell 47.3 percent between January
1986 and August 1988.
The overall decline in the real value of the U.S. dollar since 1985
and slower unit labor cost growth in U.S. manufacturing have improved the competitiveness of U.S. goods in world markets. Thus,
real net exports accounted for a large share of the real output gain in
1988, continuing a trend begun in the fourth quarter of 1986. During
the first three quarters of 1988, real net exports increased a total of
$32.1 billion, about the same as the dollar increase in nonresidential
fixed investment and about one-half of the increase in personal consumption expenditures. Export growth has continued strong at an
annual average rate of 16.2 percent, while import growth has slowed
by one-half to 5.2 percent. Real exports of agricultural products were
up at an annual average rate of 10.4 percent, real exports of nonagricultural products rose 19.5 percent, real imports of nonpetroleum
products rose 1.5 percent, and real imports of petroleum products
rose 9.4 percent. All major merchandise export components grew
strongly in 1988, with consumer goods up 36.3 percent, capital
goods except autos up 24.9 percent, foods, feeds, and beverages up
12.0 percent, and industrial supplies and materials up 17.6 percent.
The trade balance in industrial supplies has seen the greatest improvement, up $12.6 billion. Following industrial supplies, the capital
goods balance improved $9.8 billion, despite a 15.5 percent increase
in capital goods imports; autos were up $5.2 billion; consumer goods
rose $4.7 billion; and the food, feeds, and beverages balance increased $3.7 billion.
Spending restraint and fewer purchases of agricultural products by
the Commodity Credit Corporation (CCC) induced by the drought
reduced Federal Government spending on goods and services in
1988. Real Federal spending on goods and services fell at an annual
average rate of 10.4 percent over the first three quarters of 1988,




275

with defense spending down 5.8 percent and nondefense spending
down 25.6 percent. All components of defense spending fell in 1988,
with durable goods accounting for most of the decline. Virtually all
of the decline in nondefense purchases is attributable to the change
in inventories held by the CCC. Excluding the CCC inventory
change, real nondefense spending grew at an annual average rate of
0.7 percent, while total real Federal purchases were down only 4.6
percent.
Real personal consumption expenditures grew at an annual average rate of 3.8 percent during the first three quarters of 1988, but
part of this rise simply reflects the low base of the fourth quarter of
1987. Much of the decline in real personal consumption expenditures
during the fourth quarter of 1987 occurred in new automobile purchases, which fell after sales incentives expired in September 1987. If
real consumer purchases of new autos during the fourth quarter of
1987 had grown at the same rate as their average during the fourth
quarter of 1987 and the first quarter of 1988, real personal consumption expenditures' growth during the first three quarters of 1988
would be 3.2 percent, close to its postwar average annual growth.
After falling 3.5 percent in 1987, real residential fixed investment
fell at an annual average rate of 0.8 percent during the first three
quarters of 1988. Most of the decline in both years occurred in multifamily structures, reflecting the large supply of these structures created by tax incentives that existed until 1987. Spending on singlefamily structures fell at an average rate of 2.5 percent per year over
the first three quarters of 1988, with most of the decline occurring in
the first quarter.
Real State and local government purchases of goods and services
grew an average 2.6 percent per year over the first three quarters of
1988, slightly slower than GNP and about the same as their 2.5 percent pace in 1987. Purchases of goods grew at an annual average rate
of 6.5 percent, while spending on services grew 2.4 percent. After
almost 8 percent average growth in 1985 and 1986, spending on infrastructure slowed in 1987, and the weakness continued into 1988.
Spending on structures fell at an annual average rate of 2.0 percent
in 1988, after rising 1.7 percent in 1987.
Over the first three quarters of 1988, business inventory investment fell a total of $27.6 billion. All of the decline occurred in nonfarm business inventories, which fell $27.8 billion.
PRICES, WAGES, AND EMPLOYMENT

Employment continued to increase strongly in 1988. Civilian employment rose by 2.2 million through November, while the civilian
unemployment rate fell 0.4 percentage point to 5.4 percent, among




276

the lowest rates in 14 years. Nonfarm payroll employment increased
by 3.4 million during the first 11 months of 1988, with strong gains
in export-related industries.
Continued strong employment gains were barely reflected in
stronger compensation growth in 1988. Compensation per hour in
the nonfarm sector increased 4.5 percent on average during the first
three quarters of 1988, slightly above its 1987 rate of increase, and
real compensation growth increased about 0.1 percent, after falling
slightly in 1987. The growth in compensation per hour in manufacturing increased to 4.4 percent on average during the first three
quarters of 1988, almost three times as fast as in 1987, while unit
labor costs were up 0.3 percent, after falling 1.7 percent in 1987. Abstracting from short-term movements, the trends in nominal compensation per hour and in unit labor costs were rising slightly during
1988, but do not point to serious cost pressures in the aggregate
(Chart 7-4).
Chart 7-4

,

.

n

._ .

Hourly Compensation and Prices

Percent change from same quarter one year earlier
16

14
A

12

'

10

Consumer Price Index
Less Food and Energy
\_-%
/

*-\ /•//
,-x

/\

\

Compensation per Hour
(Nonfarm Business)

8
\>x

\\ \\ \

6

)

I

t

1980

I

I

I

1 I

1981

I

t

I

1982

I

t

I

1983

I I

I

I

I

I

1984

I

I

1985

!

I

t

I

1986

1 I

I

t

1987

I

I

t

I t

1988

Sources: Department of Commerce and Department of Labor.

Signs of any rise in inflation were mixed in 1988. Producer prices
grew somewhat faster in 1988 than in 1987, but the increase was
minor. The consumer price index for urban consumers increased 4.4
percent in the first 11 months of 1988, but excluding the volatile




277

food and energy components, consumer prices increased 4.6 percent
during the year, only slightly above the average of the past 5 years.
THE IMPACT OF THE DROUGHT

The drought of 1988 was one of the worst on record for principal
agricultural regions of the Midwest and Upper Mountain States. The
drought began early in the growing season and rains were delayed
long enough to drastically reduce yields of corn and soybeans, as
well as less important crops such as spring wheat, barley, oats, and
some Midwest vegetables. Hay crops and livestock forage in pastures
were also severely reduced.
Impacts of the drought on other regions and industries have been
smaller or localized. Stream flows in the Tennessee Valley had
already been reduced by several years of smaller amounts of precipitation. Shipping and electrical generation were hampered in several
regions. In the Far West, 2 years of drought have reduced water supplies to extremely low levels. Although these low water supplies had
little effect on 1988 output, if precipitation in the winter of 1989 is
below normal again, crop losses in the irrigated valleys of the Far
West will be severe. Forest fires and water shortages have been localized with little distinguishable impact on the economy as a whole. Potentially important losses attributable to higher barge transportation
costs were not a major impediment to economic activity. Finally, despite severe losses to some financial institutions in the agricultural
areas, the health of the rural financial system continued to improve.
The effects of the drought clearly distinguishable in the national
income and product accounts are crop and livestock losses. For the
1988 crop year, corn production was more than 30 percent below
pre-drought expectation and soybeans were 20 percent below expected levels. Lost crop and livestock production attributable to the
drought totaled about $12.3 billion in 1988 in terms of 1982 farm
prices or about 0.7 percent of real GNP for the year. However, the
loss in growth is temporary. With normal weather in 1989, increased
farm output from the low 1988 base will raise the projected GNP
growth for 1989 on a fourth-quarter-over-fourth-quarter basis by approximately the same 0.7 percent over what would have been expected had the drought not occurred.
Large inventory stocks have moderated the drought's effect on
prices, but cash market prices for corn and wheat are up about 30
percent relative to pre-drought levels. Because of the importance of
nonfarm inputs and farm goods unaffected by the drought, however,
higher commodity prices from the drought added about 1 percentage
point to the rise in retail food prices for 1988.




278

Higher crop prices also affect the quantity of U.S. agricultural exports and raise the costs that livestock producers and other producers face in the food industry. However, higher output prices raised
gross cash receipts of farmers in 1988. Net cash income was near
record high levels in 1988 because, in the aggregate, the higher
output prices that farmers received more than offset the yield losses
and higher input prices. Direct payments under the drought assistance legislation and feed assistance and crop insurance also supported incomes, as did the sale of farm inventories at sharply higher
prices.
MACROECONOMIC POLICIES

Spending restraint and fewer Commodity Credit Corporation purchases of agricultural products because of the drought helped lower
the Federal Government budget deficit in fiscal 1988. Nevertheless,
the deficit on a unified budget basis rose to $155.1 billion, $4.7 billion more than in fiscal 1987. Total outlays rose $59.5 billion to
$1,064.1 billion, while total receipts rose $54.9 billion to $909.0 billion. The increase in the deficit between 1987 and 1988 is attributable to the reversal of special factors that reduced the 1987 deficit.
The phase-in of the Tax Reform Act of 1986 added $21.5 billion to
receipts in 1987, but reduced tax collections by $4.5 billion in 1988.
Timing changes, such as the 1-day shift in military pay, and one-time
savings such as the sale of Conrail, held down net outlays by $10.5
billion in 1987. Without these special factors, the deficit would have
declined by $31.1 billion between 1987 and 1988.
When discussing monetary policy in 1988, it is important to distinguish policy from actions designed to achieve that policy. Monetary
policy is summarized currently by Federal Reserve announcements of
target ranges for the annual growth of M2 and M3. The target ranges
are usually 3 to 4 percentage points wide, reflecting the uncertainty
about the relationship of these monetary aggregates to economic activity. Over the course of a year the Federal Reserve may take various
actions to keep the aggregates within their target ranges. Apart from
unexpected shocks to money demand and supply, these actions
should not be interpreted as changes in policy unless they result in
money growth outside the announced target ranges.
In 1988 the Federal Reserve achieved its announced monetary
policy for the first time in 3 years. The growth rates of both M2 and
M3 were comfortably within their target ranges at year-end. Early in
the year the Federal Reserve allowed monetary aggregates to approach the upper limit of their target ranges in order to limit any impacts of the stock market crash on economic activity. By March it was
evident that the stock market crash would not seriously affect spend-




279

ing growth, and the Federal Reserve began taking actions that
brought the growth of the monetary aggregates closer to the midpoint of target ranges by the third quarter of the year.
In July the Federal Reserve announced its preliminary policy intentions for 1989. It lowered the target range for M2 from 4 to 8 percent in 1988 to 3 to 7 percent in 1989. For M3, it lowered the target
range from 4 to 8 percent to 3.5 to 7.5 percent for 1989. The lowering of the target ranges is consistent with the Federal Reserve's
desire, expressed in its targets, to promote a steady reduction in the
inflation rate over time. The Federal Reserve's target of slightly
faster growth for M3 reflects its expectation that the public will substitute away from M2 assets and toward assets found in the broader
monetary aggregates. If both M2 and M3 remain near the midpoints
of their target ranges in 1988, the transition to modestly slower
growth of the monetary aggregates in 1989 is likely to be a smooth
one.
THE ECONOMIC OUTLOOK
The Administration's economic forecast for 1989 reflects three
continuing changes in the U.S. economy: improved international
competitiveness, more restrictive macroeconomic policies, and the effects of temporary shocks to the economy. The forecast anticipates a
continuation of the transition of the U.S. economy from growth led
by domestic demand to growth driven by expanding world markets,
the result of the United States' improved competitive position. Tempering overall growth, however, are policies of monetary and fiscal
restraint. Slower monetary growth for most of 1988 following rapid
growth in the first part of the year, reflects two major considerations:
the cessation of post-crash fears of recession and the long-run national commitment to achieve stable prices. Adherence to the deficit
reduction targets of the Gramm-Rudman-Hollings legislation continues to encourage fiscal restraint. These policies are expected to hold
nonfarm economic growth below its 1988 pace.
As the economy approaches full use of its current resources, slower
growth relative to the rapid pace of recent years is a desired development. Slower domestic demand growth will allow for the continued
expansion of the Nation's international sector. Slower overall growth
will enable capacity to expand to meet demands in future years and
continue the current record-setting expansion.
The Administration's economic forecast anticipates that real GNP
will rise 3.5 percent from the fourth quarter of 1988 to the fourth
quarter of 1989, after increasing an estimated 2.6 percent during
1988. These figures are not, however, representative of the underly-




280

ing pattern of slower growth expected for most sectors of the economy in 1989. Distorting the picture of slower growth are the concluding effects of last year's drought. The impact of the drought on crop
and livestock output lowered overall growth last year, and the expected return to more normal weather conditions and farm output levels
will temporarily boost real GNP growth in 1989. As noted above,
lower drought-induced farm output in 1988 is estimated to have subtracted 0.7 percentage point from real GNP growth in 1988 (fourth
quarter to fourth quarter), and the anticipated rebound in farm production this year will contribute approximately 0.7 percentage point
to growth in 1989. After adjusting for the impact of the drought on
farm production, real GNP is estimated to have grown 3.3 percent in
1988. Drought-adjusted GNP growth is forecast to be 2.8 percent in
1989, indicating continued healthy expansion of the nonfarm economy, but at a somewhat slower pace than during 1988 and significantly slower than the rapid but likely unsustainable 5.0 percent pace of
real GNP in 1987.
The growth rates of components of real GNP for 1989, partially
detailed in Table 7-2, reflect the slowing trend in the nonfarm economy as well as the continued trend toward expanding international
trade and slower domestic demand. All components except residential and inventory investment and government purchases are projected to rise at a somewhat slower pace in 1989 relative to 1988.
TABLE 7-2.— Economic Outlook for 1989
1989
forecast

19881

Item

Percent change,
fourth quarter to fourth quarter
Real gross national product

2.6

3.5

3.3
8.4
4
-4.4
2.7

Personal consumption expenditures
Nonresidential fixed investment
Residential investment
Federal purchases of goods and services
State and local purchases of goods and services

2.0
4.9
2.7
-.6
3.0

GNP implicit price deflator

3.9

3.7

Compensation per hour2

4.6

4.7

.9

1.5

Output per houra

Fourth quarter level
Unemployment rate (percent)

3

5.3

1
2
3

5.2

1.5

Housing starts (millions of units annual rate)

1.5

Estimate.
Nonfarm business, all persons.
Unemployed as percent of labor force including resident Armed Forces.

Note.—Based on seasonally adjusted data.
Sources: Department of Commerce (Bureau of the Census and Bureau of Economic Analysis), Department of Labor (Bureau of
Labor Statistics), and Council of Economic Advisers.




281

Consistent with slower domestic demand, real consumer purchases
are forecast to increase 2.0 percent this year, down from the estimated 3.3 percent pace of 1988. Slower consumption growth relative to
income growth is expected to lift the personal saving rate somewhat
in 1989. Reflecting the continued trade-oriented realignment of the
U.S. economy, a continued strong increase in real net exports is projected partly to offset slower personal consumption growth. As the
result of growing U.S. competitiveness in world markets, exports will
continue to be one of the biggest factors contributing to growth in
1989. Real import growth will slow compared with growth in recent
years, as the result of slower drought-adjusted GNP growth and continued substitution away from more costly foreign, toward less costly
domestically, produced products. Although the improvement in real
net exports is not expected to continue at the record-setting pace of
1988, the trade sector of the economy is projected to contribute significantly to growth in 1989 and beyond.
The need for further capacity in the exporting and import-competing sectors of the economy is anticipated to continue to stimulate
growth in nonresidential fixed investment. Continued export demand
should also help support capital goods production. Owing to these
factors, nonresidential fixed investment is forecast to rise a substantial 4.9 percent in 1989, slower than the estimated 8.4 percent
growth rate achieved in 1988.
Residential investment is projected to rise modestly in 1989, following the modest estimated gains during the second half of 1988.
The recent rise comes after nearly a year and a half of decline,
prompted partly by reduced incentives for multi-unit construction
arising under the Tax Reform Act of 1986.
After subtracting significantly from growth in 1988, inventory investment is also expected to contribute to GNP growth in 1989, as
inventory-building progresses at a slower but more sustainable pace.
The decline in the pace of inventory-building in 1988 reflects a
return to more normal inventory-building patterns in the nonfarm
sectors of the economy following a large unanticipated accumulation
of inventories in the fourth quarter of 1987, when domestic final
sales growth temporarily halted. In the farm sector, inventories are
expected to accumulate in 1989 after substantial drought-induced
withdrawals for most of 1988.
Government purchases at the State and local levels in 1989 are
projected to increase 3.0 percent, similar to the pace ofT988. At the
Federal level, further decline in real purchases is expected in 1989
which will help to moderate domestic growth. Although Table 7-2
indicates that the decline in total Federal purchases appears to be
slowing in 1989 relative to 1988, the drought explains much of the




282

1988 drop. Net CCC farm inventory purchases were reduced as
higher drought-related crop prices and lower production induced
farmers to redeem crops and the CCC to sell inventories directly to
the open market. Crop redemption and government inventory sales
are expected to diminish in 1989, as farm production recovers. Projected real Federal purchases, after adjusting for the one-time effect of the
drought, reflect continued declines in 1989, following the pattern set
in 1988.
Inflation, as measured by the GNP deflator, is forecast to be 3.7
percent in 1989 on a fourth-quarter-to-fourth-quarter basis, compared with an estimated 3.9 percent in 1988. In line with slower
growth in the nonfarm economy, little change is expected in capacity
utilization rates and the rate of unemployment this year. This will
help to contain sectoral capacity problems that can put upward pressure on prices. Also, higher energy prices at the retail level and
higher farm prices were temporary factors helping to raise prices in
1988. The end of the drought, coupled with currently lower crude oil
prices, is expected to moderate price increases during 1989, and
keep reported rates of inflation within the approximately 3 percent to
4 percent range of previous years. Consistent with slower growth and
moderating inflation is the expectation of somewhat lower interest
rates in 1989.
PROJECTIONS FOR 1990-94

Table 7-3 summarizes the Administration's medium-term economic projections for the period 1990 through 1994. The projections are
not year-to-year forecasts; rather, they indicate expected trends based
on underlying factors, discussed in the next section, that will allow
continued expansion of the economy's capacity to produce. These
projections are contingent on the successful implementation of current and proposed government policies and on the assumption of no
serious adverse shocks to growth. Implicit in these figures is the assumption that the free-market, incentive-oriented policies of this Administration, which have promoted the growth and more efficient use
of national resources, will continue in coming years. In particular, the
projections embody the assumption that Federal spending continues
to be brought under control and that the benefits of tax reform are
retained. Through spending restraint and economic growth, the Federal deficit is assumed to decline in line with the Gramm-RudmanHollings targets for deficit reduction. It is also assumed that the Federal Reserve provides sufficient expansion of monetary aggregates to
maintain economic growth, while fostering continued progress
toward the long-term goal of price stability.




283

TABLE 7-3.—Administration Economic Assumptions, 1988-94
[Calendar years]
Item

1989

1988

1990

1991

1992

1993

1994

Percent change, year to year
3.8

3.2

3.2

3.3

3.2

3.2

.5

.9

1.2

1.8

2.0

1.9

1.9

Output per hour1

1.5

1.2

1.8

2.0

2.1

2.1

2.1

Consumer price index2

4.0

3.8

3.7

3.2

2.7

2.2

1.7

Real GNP
Real compensation per hour1

3.2

Annual level
Employment (millions}'1
Unemployment rate (percent) 4

116.7

118.6

120.4

122.3

124.0

125.7

127.4

5.4

5.2

5.1

5.0

5.0

5.0

5.0

1

Nonfarm business, all persons.
For urban wage earners and clerical workers.
Includes resident Armed Forces.
Unemployed as percent of labor force including resident Armed Forces.
Source: Council of Economic Advisers.
2

3

4

The Full Employment and Balanced Growth Act of 1978 requires
that the Economic Report of the President, together with the Annual Report
of the Council of Economic Advisers, include an investment policy report
and a review of progress in achieving goals specified in the act. The
strongest incentive for expanding the employment of both physical
and human resources is profitable and growing markets. Major policy
goals of this Administration have been to promote a stable noninflationary macroeconomic environment and encourage private initiative
to adjust to take advantage of changing market conditions. Progress
toward achieving these goals has allowed the current expansion to
continue into its seventh year. As a result, real nonresidential fixed
investment has grown more than 40 percent in 6 years, a peacetime
record compared with similar timespans following previous postwar
recession troughs.
Table 7-3 presents estimates of important macroeconomic measures that address the goals specified in the act. The table shows continued economic growth, rising compensation, lower rates of unemployment, and further progress toward price stability. The unemployment rate recently has fallen to the lowest level in 14 years, while the
share of the adult population employed has increased to its highest
level in the Nation's history. Unlike the expansions of the past 40
years, this expansion of employment and output has been accompanied by a stable rate of inflation. The policies of this Administration
have done much to achieve the goals specified in the act. Continued
adherence to these policies in the future is necessary to ensure
progress toward meeting these goals.




284

DETERMINANTS <DF GROWTmiSSS^

The long-run improvement in the Nation's standard of living depends importantly on expansion of its capacity to produce, which in
turn is determined by the growth and productiveness of its resources.
Growth and productiveness are functions of longer run underlying
trends in the economy and incentives created by the economic environment, the latter being influenced by government policies. Favorable longer term trends, combined with policies directed at improving growth and maintaining the healthy economic climate the Nation
currently enjoys, are projected to maintain the momentum that the
economy has developed during the 1980s, returning it to the trend
rate of growth of the postwar era.
Over the projection period, these long-run forces—growth of the
labor force and labor productivity—are supplemented by changes in
the utilization of capital and labor. The productivity of labor depends
on the education, experience, and the skills of the labor force; on the
supplies of physical capital and other cooperating factors of production; and on the technological efficiency of resource allocation. Influencing the supply of labor are the size of the general population and
its demographic characteristics and incentives to undertake employment in the market economy. The cyclical state of the economy affects
the use of capital and labor by encouraging or discouraging the search
for jobs, by changing the mix of factors in production, and by changing the demand for inputs.
A detailed breakdown of the components that make up these
sources of growth, organized into an accounting framework, is presented in Table 7^4. In order to focus on trends in the economy and
to avoid the complications of cyclical fluctuations, the first two columns of the table show growth rates from business cycle peak to
business cycle peak for historical periods. The third column shows
growth from the peak of the last business cycle through the third
quarter of 1988, and the final column presents growth rates over the
projection period, which extends through 1994.
Growth of the labor force is expected to slow somewhat further
during the projection period, mainly because of changes in the demographic composition of the population. The gradual decline in the
growth rate of the adult population, which has occurred since the
baby-boom generation reached adulthood in the 1960s and 1970s, is
expected to continue into the next decade. As Table 7-4 shows, increases in labor force participation (the fraction of the adult population in the labor force) also determine labor force growth. Strongly
rising rates of labor force participation that have existed since the
1970s are expected to continue in coming years. Increases in overall
participation will likely reflect continued entry of women into the




285

TABLE 7-4.—Accounting for Growth in Real GNP, 1948-94
[Average annual percent change]
1948 IV
to
1981 III

1973 IV
to
1981 III

1981 III
to
1988 III

1988 III
to
1994 IV

15
2

18
5

12
.5

09
.5

18
— 1

2.4
4

1.7
3

1.4
1

17
.1

20
.1

20
.3

15
.2

17
—4

21
6

23
1

17
1

1.4
19

1.5
6

2.2
14

1.6
19

33
- 0

20
1

37
7

3.6
4

3.3

Item

2.2

3.0

3.2

GROWTH IN:
1) Civilian noninstitutional population aged 16 and over
2) PLUS: Civilian 'abor force participation rate
3) EQUALS: Civilian labor force
4) PLUS' Civilian employment rate....

!

5) EQUALS- Civilian employment
6) PLUS: Nonfarrn business employment as share of civilian employment
7) EQUALS- Nonfarm business employment.
8) PLUS' Average weekly hours (n on farm business)
9) EQUALS: Hours of all persons {nonfarm business)
10) PLUS: Output per hour (productivity, nonfarm business). .
11) EQUALS: Nonfarm business output
12) LESSNonfarm business output as share of real GNP
13) EQUALS: Real GNP

Note.—Based on seasonally adjusted data. Detail may not add to totals due to rounding.
Sources: Department of Commerce (Bureau of the Census and Bureau of Economic Analysis), Department of Labor (Bureau of
Labor Statistics), and Council of Economic Advisers.

work force, higher participation of young workers as they make up a
smaller proportion of the population, and a slowing of the decline in
participation of people over 55. Reductions in marginal tax rates on
labor income initiated during this Administration are expected to encourage labor force participation in the years ahead. Furthermore,
maintenance of a stable, growing economy with expanding employment opportunities encourages increased labor force participation.
Overall, the civilian labor force is projected to rise 1.4 percent per
year during the projection period.
Changes in the utilization of labor are indicated by the growth of
employment relative to the labor force. Civilian employment is projected to grow at an annual average rate that is slightly faster than
labor force growth over the projection period, reflecting further
modest declines in the rate of unemployment. The 0.1 percent
annual increase in the employment rate appearing in the last column
of the table reflects the estimated decline in the unemployment rate
from current levels to 5.0 percent in 1991 and later years. It is assumed that, at approximately this level, remaining unemployment is
largely frictional.
The estimate of civilian employment growth is adjusted to cover
the nonfarm business sector in order to match published statistics for
productivity. A further adjustment, to account for a slight projected
decline in the length of the workweek, yields the growth rate of total
hours available for production indicated in Table 7-4. The sum of
the growth rate of total hours and the growth rate of output per hour




286

(productivity for nonfarm business) determines the growth rate of
nonfarm business output over the medium term. After adjustments
for the effect of relatively stronger growth in the nonfarm business
sector than in other sectors in the economy, the rate of growth of
real GNP is shown on the final line of Table 7-4.
The table shows that the average growth rate of real GNP through
1994 is projected to be 3.2 percent a year, the same as the average
rate of the 1948-88 postwar period. Continued strong increases in
labor force participation and a higher rate of productivity growth are
projected to offset slower population growth.
Critical to these projections is the assumption of continued productivity growth at the average rate of increase achieved from 1948
to 1981. This assumption recognizes favorable trends in the economy
that are expected to restore productivity growth to its previous trend,
as well as policy initiatives that are expected to promote technological change and growth in physical and human capital. Aging of the
baby-boom generation implies a trend toward a more experienced,
more educated, and more skilled work force that should translate
into improved productivity growth in coming years. Slower growth of
the labor force will facilitate capital deepening in coming years, that
is, an increase in the stock of capital per employed worker. Continued stability and gradual decline of the inflation rate should also contribute to stronger productivity growth by reducing the cost of capital
and by focusing managerial energies on improving efficiency in resource allocation. Oil and energy prices are expected to remain lower
than in the late 1970s and early 1980s, implying that firms will have
more resources to spend on investments that enhance general productivity than on investments that reduce energy costs.
Government policies should also contribute to increased productivity growth. Partly as a result of government initiatives, research and
development expenditures as a share of GNP are expected to remain
higher than in the 1970s, thus promoting innovation and technological change. Government initiatives to improve education and to promote investment in knowledge and human capital should also lift
productivity growth. Tax reform has lessened the distortions to investment decisions by establishing more equal effective tax rates
across investment activities. This effect, coupled with policy initiatives
to lower market barriers and distortions, will allow capital and labor
to realize their productive potential more fully. Finally, avoiding
short-run stabilization policies will increase the likelihood of maintaining a noninflationary economic environment. That environment
will, in turn, allow private producers to concentrate on achieving
higher productivity growth and profitability.




287

THE LEGACY OF THIS ADMINISTRATION
High and rising inflation, distorted tax incentives, and burdensome
regulation sapped the productive energies of the Nation during the
1970s. Productivity and real income growth stagnated, and U.S. competitiveness in world markets was severely eroded. The cure for these
economic problems required nothing less than a fundamental refocusing of Federal Government responsibilities and policy initiatives.
This refocusing of government policy is the legacy of this Administration.
The underlying tenet of economic policy in this Administration is
that, with the proper incentives, private markets generally provide
more efficient economic outcomes than are possible with direct government intervention. Thus, the Administration discarded social and
economic policies that were wasteful and not incentive-based, and reversed activist aggregate-demand management policies. The Administration undertook efforts to establish and maintain a stable policy
environment in which private initiative played the major role in providing desired outcomes. At the same time, the Federal Government
continued to support basic public infrastructure investments and provide a social safety net.
Stable and incentive-based economic policies have served the
Nation well in the past. Real incomes and standards of living improved rapidly between 1900 and 1913, during the 1920s, and between 1946 and 1965, when the money supply generally grew at a
noninflationary rate and Federal Government spending was geared to
providing basic services. On the other hand, economic performance
deteriorated when such policies were not followed. For example, recession turned into depression during the early 1930s when the Federal Reserve allowed the money supply to fall by one-third between
1929 and 1933, and U.S. beggar-thy-neighbor trade policies incited
retaliation and a consequent decline in world trade and income. Inflationary monetary policy, high tax rates and inflation-distorted tax
incentives, and a large and growing regulatory burden contributed to
the stagflation of the 1970s.
The redefinition of fiscal policy under this Administration has been
aptly described as a fiscal revolution. This revolution has not overthrown the Employment Act of 1946, which commits the Federal
Government to maintaining high levels of income, employment, and
purchasing power. It has overthrown a long entrenched view of the
best way to achieve the goals of the act. Gone are attempts to smooth
fluctuations in aggregate demand through frequent changes in government expenditure and tax policies and efforts to find a balanced
mix of fiscal and monetary actions. As indicated in Chapter 1 of this




288

Report, this activist policy has generally failed to smooth aggregate
fluctuations, and in a few cases has actually increased the variability
of aggregate demand. Instead, this Administration has worked to establish and maintain stable incentives for productive behavior by reducing marginal tax rates on capital and personal income, indexing
personal income tax rates to the rate of inflation, eliminating wasteful
tax preferences that distort incentives, and controlling government
outlays. Monetary policy has been used principally to achieve and
maintain a modest rate of inflation.
Another important element of the incentive-based policies of this
Administration was a commitment to flexible exchange rates and free
international trade. The rationale for this commitment is given in
Chapter 4, which demonstrates that international trade is not a zerosum game, where an increase in the exports of one country offsets a
reduction in exports by other countries. Free trade expands world
trade and raises incomes of all nations.
Flexible exchange rates and free trade send a prompt and accurate
signal about the competitive position of a nation in world markets.
The decline in competitiveness of U.S. goods in world markets created by the stagflation of the 1970s was laid bare during the first half
of the 1980s, when U.S. goods lost a considerable market share of
world trade. The efficient solution to this loss of competitiveness was
not, and is not, a shield fashioned from tariffs, quotas, and other impediments to trade. Free trade gave U.S. manufacturers an efficient,
market-based incentive to compete on the basis of the price and
quality of their goods. As documented in Chapter 1 and earlier in
this chapter, U.S. manufacturers have lowered production costs and
improved their productivity, and, with help from a lower value of the
U.S. dollar in foreign exchange markets, they have seen a substantial
rise in their world market share.
Flexible exchange rates and free trade impose a discipline on economic policymakers worldwide, providing the incentive to implement
sound, market-based economic policies and to coordinate these policies with other countries. A good example of this discipline appeared
in the early 1980s, when the U.S. dollar began to appreciate in foreign exchange markets. The initial reason for this appreciation was
the confidence on the part of U.S. and foreign investors that the economic policies of this Administration would contribute to strong economic growth and lower inflation in the United States relative to the
rest of the world. The U.S. dollar continued to appreciate after the
Administration's policies were implemented, and these expectations
were fulfilled. Foreign capital inflows into the United States signaled
to foreign governments that their own economic policies needed to
be redirected in the same manner as in the United States. Other




289

countries lowered their tax and inflation rates, and deregulated and
privatized many of their key industries. As countries implemented
these policies, their economic growth has increased and the U.S.
dollar has depreciated in response.
The challenge for the future is to sustain political and economic
stability by maintaining a strong national defense and the commitment to market-based policies and price stability. Further efforts to
deregulate domestic markets and international markets slated for upcoming negotiations under the General Agreement on Tariffs and
Trade should be assigned high priority. Moreover, national governments worldwide must work to establish consistent monetary policies
to achieve and maintain price stability. With these policies acting as
the foundation, national economies can build on the achievements
gained during this President's stewardship of the U.S. economy, and
can continue to improve standards of living worldwide.




290

Appendix A
REPORT TO THE PRESIDENT ON THE ACTIVITIES
OF THE
COUNCIL OF ECONOMIC ADVISERS DURING 1988







LETTER OF TRANSMITTAL
COUNCIL OF ECONOMIC ADVISERS,
Washington, D.C, December 31, 1988.
MR. PRESIDENT:
The Council of Economic Advisers submits this report on its
activities during the calendar year 1988 in accordance with section
10(d) of the Employment Act of 1946 as amended by the Full Employment and Balanced Growth Act of 1978.
Sincerely,




Beryl W. Sprinkel, Chairman
Thomas Gale Moore, Member

293

Council Members and their Dates of Service
Name
Edwin G Nourse
Leon H. Keyserling
John D Clark
Roy Blougti
Robert C. Turner
Arthur F Bums
Neil H. Jacoby
Walter W Stewart ,
Raymond J Saufnier
Joseph S Davis
Paul W. McCracken
Karl Brandt
Henry C. Wallicn
Walter W. Heller
James Tobin
Kermit Gordon
Gardner Ackley
John P. Lewis
Otto Eckstein
Arthur M Okun

Oath of office date

Position

....... ..

James S Duesenberry
Merton J Peck
Warren L Smith
Paul W McCracken
Hendrik S Houthakker
Herbert Stein
Ezra Solomon
Marina v N Whitman
Gary L. Seevers
William J Fellner
Alan Greenspan
Paul W MacAvoy
Burton G. Malkiel
Charles L Schultze
William D Nordhaus
Lyle E. Gramley
George C. Eads
Stephen M. Goldfeld
Murray L Weidenbaum
William A Niskanen
Jerry L. Jordan
Martin Feldstein
William Poole
Beryl W. Sprinkel
Thomas Gale Moore
Michael L Mussa




August 9 1946 .
August 9, 1946
November 2 1949
May 10, 1950
August 9, 1946
May 10 1950
June 29 1950
September 8, 1952
March 19 1953
September 15, 1953
December 2 1953
April 4 1955
December 3, 1956
May 2 1955
December 3, 1956
November 1 1958
May?, 1959
January 29, 1961
January 29 1961
January 29, 1961
August 3 1962
November 16 1964
May 17, 1963
September 2 1964
November 16, 1964
February 15 1968
February 2 1966
February 15, 1968
July 1 1968
February 4 1969
February 4 1969
February 4 1969
January 1 1972
September 9, 1971
March 13 1972
July 23, 1973
October 31, 1973
September 4 1974
June 13 1975
July 22, 1975
January 22 1977
March 18 1977
March 18, 1977
June 6, 1979
August 20, 1980
February 27 1981
June 12 1981
July 14, 1981
October 14 1982
December 10 1982
April 18, 1985
July 1 1985
August 18 1986 ...

Chairman
Vice Chairman
Acting Chairman
Chairman
Member
Vice Chairman
Member
Member .
Chairman
Member ...
Member
Member
Chairman
Member
Member
Member
Chairman
Member
Member
Member
Chairman
Member
Member
Member .
Chairman
Member
Member
Member
Chairman
Member
Member
Chairman
Member
Member
Member
Member
Chairman
Member
Member
Chairman
Member
Member
Member
Member
Chairman
Member
Member .. .
Chairman
Member
Chairman
Member . .
Member

294

Separation date
November 1 1949.
January 20, 1953.
February 11, 1953.
August 20 1952.
January 20, 1953.
December 1, 1956.
February 9, 1955.
April 29, 1955.
January 20, 1961.
October 31, 1958.
January 31, 1959.
January 20, 1961.
January 20, 1961.
November 15, 1964.
July 31, 1962.
December 27, 1962.
February 15, 1968.
August 31, 1964.
February 1, 1966.
January 20, 1969.
June 30, 1968
January 20, 1969.
January 20, 1969.
December 31, 1971.
July 15 1971
August 31 1974.
March 26, 1973.
August 15, 1973.
April 15, 1975.
February 25, 1975.
January 20, 1977.
November 15 1976.
January 20, 1977.
January 20, 1981.
February 4 1979.
May 27, 1980.
January 20, 1981.
January 20, 1981.
August 25 1982.
March 30 1985
July 31, 1982.
July 10, 1984
January 20 1985.
September 19 1988.

Report to the President on the Activities of the
Council of Economic Advisers During 1988
The Council of Economic Advisers was established by the Employment Act of 1946 to provide economic analysis and advice to the
President and thus to assist in the development and implementation
of national economic policies. The Council also advises the President
with regard to decisions on other matters that affect the health and
operations of the Nation's economy.
Beryl W. Sprinkel and Thomas Gale Moore continued to serve as
Council Members in 1988, with Dr. Sprinkel as Chairman. Michael L.
Mussa resigned as a Member on September 19, 1988, to return to
the University of Chicago where he is the William H. Abbott Professor of International Business. Allan H. Meltzer, the John M. Olin
Professor of Political Economy and Public Policy at Carnegie-Mellon
University, served as a consultant to the Council for macroeconomic
policies during the remainder of the Administration,
MACROECONOMIC POLICIES
As is its tradition, the Council devoted much of its time during
1988 to assisting the President in formulating economic policy objectives and designing programs to achieve them. In this regard, the
Chairman kept the President informed on a continuing basis of important macroeconomic developments and advised the President and
senior Administration officials on major policy issues. Special attention was devoted to developments, following the 1987 stock market
crash, especially monetary developments; conditions in the thrift industry; and securities market regulation.
The Council chaired an interagency forecasting group, which included representatives from the Department of the Treasury and the
Office of Management and Budget. This group developed the economic forecast and projections which the Chairman presented to the
President and were used in the 1990 budget.
The Chairman, Council Members, and staff participated in discussions of macroeconomic issues within the Administration at various
levels including the Cabinet level. The Council also participated in
discussions of macroeconomic policies with outside agencies.




295

INTERNATIONAL ECONOMIC POLICIES
The Chairman briefed the President and senior White House staff
on a number of international economic issues, including briefings in
preparation for the Toronto Economic Summit. The Chairman continued to serve as Chairman of the Economic Policy Committee of
the Organization for Economic Cooperation and Development
(OECD). The Council also continued in its role as the head of the
U.S. delegation to the Working Party on structural change and domestic issues. In these roles the Council made substantial progress in
helping the nations of Europe to recognize the costs of market restrictions on their economies. OECD has made structural reform a
major item on its economic agenda. Similar talks with the Japanese
Economic Planning Agency have also focused on structural reform
and macroeconomic policies.
The Council also played an active role in interagency trade organizations. Issues that received special attention this year included the
Canadian Free-Trade Agreement, the Omnibus Trade bill, the Uruguay Round of GATT negotiations, international telecommunications
policy, agricultural subsidies, and high definition television.
DOMESTIC MICROECONOMIC POLICIES

A wide variety of domestic microeconomic issues received attention
during the year. The Chairman actively participated in the Cabinetlevel Domestic Policy Council and Economic Policy Council, dealing
with such issues as the international agreement on chlorofluorocarbons, space commercialization, and the deregulation of natural gas
and electricity markets. The Council continued to chair the working
groups on Privatization and Corporate Sentencing. The Council continued its membership on the Vice President's Task Force on Regulatory Relief, and its membership on the interagency working groups
on Acid Rain, Global Warming, and Immigration Reform.
The Chairman and Members were also active participants in discussions of a number of labor issues during the past year. Issues
which received special attention included the minimum wage, child
care, and mandatory health insurance.
PUBLIC INFORMATION

The Council's Annual Report is the principal medium through which
the Council informs the public of its work and its views. It is an important vehicle for presenting the Administration's domestic and
international economic policies. Annual distribution of the Report in
recent years has averaged about 45,000 copies. The Council assumes
primary responsibility for the monthly Economic Indicators, which is
issued by the Joint Economic Committee of the Congress and has a




296

distribution of approximately 10,000. Information is also provided to
the public through speeches, testimony, press briefings, and other
public appearances by the Council Chairman, Members, and senior
staff. The Council also provided review and support for a number of
publications, including the White House Economic Bulletin.
ORGANIZATION AND STAFF OF THE COUNCIL
OFFICE OF THE CHAIRMAN

The Chairman is responsible for communicating the Council's
views to the President through personal discussions and written reports on economic developments. The Chairman also represents the
Council at Cabinet meetings, meetings of the Economic Policy Council and Domestic Policy Council, daily White House senior staff meetings, weekly issues lunches with the President, and at many other
formal and informal meetings with the President and senior White
House staff, as well as with other senior government officials. The
Chairman guides and oversees the work of the Council and exercises
ultimate responsibility for directing the work of the Members and the
professional staff.
COUNCIL MEMBERS

Members of the Council are involved in the full range of issues
within the Council's purview, and are responsible for the daily supervision of the work of the professional staff. Members represent the
Council at a wide variety of interagency and international meetings
and assume major responsibility for selecting issues for Council attention.
The small size of the Council permits the Chairman and Members
to work as a team on most policy issues. There continued to be, however, an informal division of subject matter. Dr. Moore has been primarily responsible for domestic and international microeconomic and
sectoral analysis and regulatory issues. Dr. Mussa was primarily responsible for domestic and international macroeconomic analysis and
economic projections. After Dr. Mussa's departure, Dr. Meltzer, in
his role as consultant, took over these duties as well as a major responsibility for the Council's Annual Report.
PROFESSIONAL STAFF

The professional staff of the Council consists of the Special Assistant, the Senior Statistician, 10 senior staff economists, 2 staff economists, 3 junior staff economists, 2 associate junior staff economists,
and 1 research assistant. The professional staff and their respective
areas of concentration at the end of 1988 were:




297

Special Assistant to the Chairman
J. Steven Landefeld
Senior Staff Economists
James N. Brown
Gregory S. Crespi
Lauren J. Feinstone
Robert W. Hahn
David N. Hyman
Carole E, Kitti
Kim J. Kowalewski
Harvey E. Lapan
Daniel A. Sumner
Peter M. Taylor

Microeconomics and Labor
Law and Economics
International Macroeconomics
Regulation and Banking
Public Finance and Fiscal Policy
Microeconomics and Science and Technology
Macroeconomics and Monetary Policy
International Trade and Macroeconomics
Agriculture and Labor
Macroeconomics and Forecasting
Senior Statistician
Catherine H. Furlong
Staff Economists

Ellen E. Hanak
John A. Hird

International Trade and Finance
Regulation and Public Finance
Junior Staff Economists

Marcel M. Cassard
Kenneth R. Richards
Robert J. Scheinerman

International Macroeconomics and Finance
Energy, Environment, Law, and Regulation
Labor and Macroeconomics
Associate Junior Staff Economists

Theodore G. Bernard
William A. Teichner

Macroeconomics and Monetary Policy
Macroeconomics, Forecasting, and
Public Finance
Research Assistant

Jonathan A. Parker

Macroeconomics, Fiscal Policy, and
Forecasting

David N. Hyman, North Carolina State University, also served as a
consultant during the fall of 1988. H. Steven Pious, Georgetown University, served as a part-time research assistant during 1988, and
James DeNaut, Harvard Business School, served as a research assistant during the summer of 1988,
Catherine H. Furlong manages the Statistical Office assisted by
Natalie V. Rentfro, Linda A. Reilly, and Margaret L. Snyder. They
administer the Council's statistical information system, overseeing the




298

publication of the Economic Indicators and the statistical appendix to
the Economic Report, as well as the verification of statistics in memoranda, testimony, and speeches.
Joseph Foote provided editorial assistance in the preparation of the
1989 Economic Report.
Three former staff members returned to assist in the preparation
of the 1989 Report: Richard H. Clarida (senior staff economist), Kimberly A. Dale (student assistant), and Dorothy Bagovich (statistical assistant). Melissa B. Silverstein (student assistant) joined the Council
to assist in the Report.
SUPPORTING STAFF
The Administrative Office, which provides general support for the
Council's activities, consists of Elizabeth A. Kaminski, Administrative
Officer, and Catherine Fibich, Administrative Assistant.
The secretaries for the Council of Economic Advisers during 1988
were Lisa D. Branch, Sandra F. Daigle, Gerardo Garcia, Mary E.
Jones, Francine P. Obermiller, Suzanne M. Tudor, Janet J. Twyman,
and Alice H. Williams.
DEPARTURES
Margot E. Machol, who served as Chairman Sprinkel's Special Assistant throughout his tenure, resigned this year. Ms. Machol departed to accept an appointment by the President as a Commissioner of
the Federal Trade Commission.
The Council's senior staff economists, in most cases, are on leave
of absence from faculty positions at academic institutions or from
other government agencies or research institutions. Their tenure with
the Council is usually limited to 1 or 2 years. Most of the senior staff
economists who resigned during the year returned to their previous
affiliations. They are: Deborah J. Danker (Board of Governors of the
Federal Reserve System), Earl L. Grinols (University of Illinois at
Urbana-Champaign), Craig S. Hakkio (Federal Reserve Bank of
Kansas City), and Robert J. LaLonde (University of Chicago). Others
went on to new positions: They are Arlene S. Holen (Office of Management and Budget) and Thomas A. Smith (Covington Be Burling).
Junior staff economists generally are graduate students who spend
1 year with the Council and then return to complete their dissertations. Those who returned to their graduate studies in 1988 are:
Lesley A. Cameron (University of Maryland), Andrew J. Filardo (University of Chicago), Julie Ann Hewitt (University of California at
Berkeley), Randall S. Kroszner (Harvard University), and Scott D.
Schuh (Johns Hopkins University). Peter H. Barlerin joined the Department of State.




299

Deborah D. Miller, Statistical Office, resigned in 1988. In addition,
Kimberly A. Dale served as a student aide during the summer.




300

Appendix B
STATISTICAL TABLES RELATING TO INCOME,
EMPLOYMENT, AND PRODUCTION







C O N T E N T S
NATIONAL INCOME OR EXPENDITURE:
B-l,
B-2.
B-3.
B-4.
B-5.
B-6.
B-7.
B-8.
B-9.
B-10.
B-l 1,
B-l 2.
B-13.
B-14.
B-l 5.
B-16.
HB-17.
B-18.
B-19.
B-20.
B-21.
B-22.
B-23.
B-24.
B-25.
B-26.
B-27.
B-28.
B-29.
B-30.

Page

Gross national product, 1929-88 ........................................................ 308
Gross national product in 1982 dollars, 1929-88 .............................. 310
Implicit price deflators for gross national product, 1929-88 ............. 312
Fixed-weighted price indexes for gross national product, 1982
weights, 1959-88 ............................. . ................................................ 314
Changes in gross national product, personal consumption expenditures, and related price measures, 1933-88 .................................... 315
Gross national product by major type of product, 1929-88 .............. 316
Gross national product by major type of product in 1982 dollars,
1929-88
............................................................................................
317
Gross national product by sector, 1929-88 ........................................ 318
Gross national product by sector in 1982 dollars, 1929-88 .............. 319
Gross national product by industry, 1947-87 ..................................... 320
Gross national product by industry in 1982 dollars, 1947-87 ........... 321
Gross national product of nonfinancial corporate business, 192988
......................................................................................................
322
Output, costs, and profits of nonfinancial corporate business,
1948-88
............................................................................................
323
Personal consumption expenditures, 1940-88 ................................... 324
Personal consumption expenditures in 1982 dollars, 1940-88 .......... 325
Gross and net private domestic investment, 1929-88 ........................ 326
Gross and net private domestic investment in 1982 dollars, 192988..................................................................................... ................. 327
Inventories and final sales of business, 1946-88 ................................ 328
Inventories and final sales of business in 1982 dollars, 1947-88 ...... 329
Foreign transactions in the national income and product accounts,
1929-88 ................................ . ........................................................... 330
Exports and imports of goods and services in 1982 dollars, 192988
......................................................................................................
331
Relation of gross national product, net national product, and national income, 1929-88 ........................ ...... ...................................... 332
Relation of national income and personal income, 1929-88 ............. 333
National income by type of income, 1929-88 .................................... 334
Sources of personal income, 1929-88 ................................................ 336
Disposition of personal income, 1929-88 ........................................... 338
Total and per capita disposable personal income and personal consumption expenditures in current and 1982 dollars, 1929-88 ....... 339
Gross saving and investment, 1929-88 ............................................... 340
Saving by individuals, 1946-88 ........................................................... 341
Number and median income (in 1987 dollars) of families and persons, and poverty status, by race, selected years, 1965-87 ............ 342




303

POPULATION, EMPLOYMENT, WAGES, AND PRODUCTIVITY:
B-31.
B-32.
B-33.
B-34.
B-35.
B-36,
B-37,
B-38,
B-39.
B-40.
B-41.
B-42.
B-43.
B-44.
B-45.
B-46.
B-47.

Population by age groups, 1929-88
Population and the labor force, 1929-88
Civilian employment and unemployment by sex and age, 1947-88..
Civilian employment by demographic characteristic, 1954-88
Unemployment by demographic characteristic, 1954-88
Labor force participation rate and employment/population ratio,
1948-88
Civilian labor force participation rate by demographic characteristic, 1954-88...'.
Civilian employment/population ratio by demographic characteristic, 1954-88
Unemployment rate, 1948-88
Civilian unemployment rate by demographic characteristic, 194888
Unemployment by duration and reason, 1947-88
Unemployment insurance programs, selected data, 1955-88
Employees on nonagricultural payrolls, by major industry, 1946-88
Average weekly hours and hourly earnings in selected private nonagricultural industries, 1947-88
Average weekly earnings in selected private nonagricultural industries, 1947-88.,
Productivity and related data, business sector, 1947-88
Changes in productivity and related data, business sector, 1948-88.

Page
343
344
346
347
348
349
350
351
352
353
354
355
356

358
359
360
361

PRODUCTION AND BUSINESS ACTIVITY:
B-48.
B-49.
B-50,
B-51.
B-52,
B-53.
B-54,
B-55.
B-56,
B-57.
PRICES:
B-58,
B-59.
B-60.
B-61,
B-62.
B-63.
B-64.
B-65.
B-66.

Industrial production indexes, major industry divisions, 1939-88....
Industrial production indexes, market groupings, 1947-88
Industrial production indexes, selected manufactures, 1947-88
Capacity utilization rates, 1948-88
New construction activity, 1929-88
New housing units started and authorized, 1959-88
Business expenditures for new plant and equipment, 1947-89
Manufacturing and trade, sales and inventories, 1948-88
Manufacturers' shipments and inventories, 1947-88
Manufacturers' new and unfilled orders, 1947-88

362
363
364
365
366
368
369
370
371
372

Consumer price indexes, major expenditure classes, 1946-88
Consumer price indexes, selected expenditure classes, 1946-88
Consumer price indexes, commodities, services, and special
groups, 1946-88
Changes in special consumer price indexes, 1958-88
Changes in consumer price indexes, commodities and services,
1929-88
Producer price indexes by stage of processing, 1947-88
Producer price indexes by stage of processing, special groups,
1974-88
Producer price indexes for major commodity groups, 1947-88
Changes in producer price indexes for finished goods, 1955-88

373
374




304

376
377
378
379
381
382
384

MONEY STOCK, CREDIT, AND FINANCE:

B-67,
B-68.
B-69.
B-70.
B-71,
B-72.
B-73.
B-74.
B-75.

Money stock, liquid assets, and debt measures, 1959-88
Components of money stock measures and liquid assets, 1959-88...
Aggregate reserves of depository institutions and monetary base,
1959-88
Commercial bank loans and securities, 1972-88
Bond yields and interest rates, 1929-88
Total funds raised in credit markets by nonfinancial sectors, 197988
Mortgage debt outstanding by type of property and of financing,
1939-88
Mortgage debt outstanding by holder, 1939-88
Consumer credit outstanding, 1950-88

Page
385
386
388
389
390
392

394
395
396

GOVERNMENT FINANCE:
B-76,
B-77.
B-78.
B-79.
B-80.
B-81.
B-82.
B-83,
B-84.
B-85.
B-86.

Federal receipts, outlays, surplus or deficit, and debt, selected
fiscal years, 1929-90
Federal receipts, outlays, and debt, fiscal years 1980-90
Relation of Federal Government receipts and expenditures in the
national income and product accounts to the budget, fiscal years
1988-90
Federal and State and local government receipts and expenditures,
national income and product accounts, 1929-88
Federal and State and local government receipts and expenditures,
national income and product accounts, by major type, 1929-88...
Federal Government receipts and expenditures, national income
and product accounts, 1967-90
State and local government receipts and expenditures, national
income and product accounts, 1946-88
State and local government revenues and expenditures, selected
fiscal years, 1927-87
Interest-bearing public debt securities by kind of obligation, 196788
Maturity distribution and average length of marketable interestbearing public debt securities held by private investors, 1967-88.
Estimated ownership of public debt securities, by private investors,
1976-88

CORPORATE PROFITS AND FINANCE:
B-87. Corporate profits with inventory valuation and capital consumption
adjustments, 1929-88
B-88. Corporate profits by industry, 1929-88
B-89. Corporate profits of manufacturing industries, 1929-88
B-90. Sales, profits, and stockholders' equity, all manufacturing corporations, 1950-88
B-91. Relation of profits after taxes to stockholders' equity and to sales,
all manufacturing corporations, 1947-88
B-92. Sources and uses of funds, nonfarm nonfinancial corporate business, 1946-88
B-93, State and municipal and business securities offered, 1940-88
B-94. Common stock prices and yields, 1949-88
B-95. Business formation and business failures, 1945-88




305

397
398
400
401
402
403
404
405
406

407
408

409
410
411
412
413
414
415
416
417

AGRICULTURE:
B-96.
B-97,
B-98.
B-99,
B-100.
B-101.

Farm income, 1929-88
Farm output and productivity indexes, 1947-88
Farm input use, selected inputs, 1947-87
Indexes of prices received and prices paid by farmers, 1948-88
U.S. exports and imports of agricultural commodities, 1940-88
Balance sheet of the farm sector, 1939-88

418
419
420
421
422
423

INTERNATIONAL STATISTICS:
B-102. U.S. international transactions, 1946-88
B-103, U.S. merchandise exports and imports by principal end-use category, 1965-88
B-104. U.S. merchandise exports and imports by area, 1979-88
B-105. U.S. merchandise exports, imports, and trade balance, 1970-88
B-106. International investment position of the United States at year-end,
1980-87
B-107. International reserves, selected years, 1952-88
B-108, Foreign exchange rates, 1967-88
B-109, Industrial production and consumer prices, major industrial countries, 1962-88
B-110. Civilian unemployment rate, and hourly compensation, major industrial countries, 1960-88
B-lll. Growth rates in real gross national product, 1961-88




306

424
426
427
428
429
430
431
432
433
434

General Notes
Detail in these tables may not add to totals because of rounding.
Unless otherwise noted, all dollar figures are in current dollars.
Symbols used:
p
Preliminary.
Not available (also, not applicable).
Data in these tables reflect revisions made by the source agencies during 1988.




307

NATIONAL INCOME OR EXPENDITURE
TABLE B-l.—Gross national product, 1929-88
[Billions of dollars, except as noted; quarterly data at seasonally adjusted annual rates]
Gross private domestic investment

Personal consumption expenditures

Fixed investment
Year or quarter

1929
1933
1939 ....
1940
1941
1942
1943
1944
1945 .
1946
1947
1948
1949 ....
1950
1951
1952
1953
1954
1955
1956.. .
1957
1958
1959
1960 .
1961
1962 ..
1963
1964
1965.. .
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982.
1983
1984
1985
1986
1987
1982: IV
1983- IV
1984: IV
1985: IV
1986:1
H..
Ill
IV
1987- 1
f|
Ill .
IV
1988- 1
||
III

Gross
national
product

103.9
56.0
91.3
100.4
125.5
159.0
192.7
211.4
213.4
212.4
235.2
261.6
260.4
288.3
333.4
351.6
371.6
372.5
405.9
428.2
451.0
456.8
495.8
515.3
533.8
574.6
606.9
649.8
705.1
772.0
816.4
892.7
963.9
1,015.5
1,102.7
1,212.8
1,359.3
1,472.8
1,598.4
1,782.8
1,990.5
2,249.7
2,508.2
2,732.0
3,052.6
3,166.0
3,405.7
3,772.2
4,014.9
4,240.3
4,526.7
3,212.5
3,545.8
3,851.8
4,107.9
4,180.4
4,207.6
4,268.4
4,304.6
4,391.8
4,484.2
4,568.0
4,662.8
4,724.5
4,823,8
4,909.0

Total

77.3
45.8
67.0
71.0
80.8
88.6
99.5
108.2
119.6
143.9
161.9
174.9
178.3
192.1
208.1
219.1
232.6
239.8
257.9
270.6
285.3
294.6
316.3
330.7
341.1
361.9
381.7
409.3
440.7
477.3
503.6
552.5
597.9
640.0
691.6
757.6
837.2
916.5
1,012.8
1,129.3
1,257.2
1,403.5
1,566.8
1,732.6
1,915.1
2,050.7
2,234.5
2,430.5
2,629.0
2,807.5
3,012.1
2,117.0
2,315.8
2,493.4
2,700.4
2,739.0
2,772.1
2,842.8
2,876.0
2,921.7
2,992.2
3,058.2
3,076.3
3,128.1
3,194.6
3,261.2

NonDurable durable Services
goods goods

9.2
3.5
6.7
7.8
9.7
6.9
6.5
6.7
8.0
15.8
20.4
22.9
25.0
30.8
29.9
29.3
32.7
32.1
38.9
38.2
39.7
37.2
42.8
43.5
41.9
47.0
51.8
56.8
63.5
68.5
70.6
81.0
86.2
85.7
97.6
111.2
124.7
123.8
135.4
161.5
184.5
205.6
219.0
219.3
239.9
252.7
289.1
335.5
372.2
406.5
421.9
263.8
310.0
346.7
373.2
381.4
393.0
429.9
421.8
403.5
420.5
441,4
422.0
437.8
449.8
452.9

37.7
22.3
35.1
37.0
42.9
50.8
58.6
64.3
71.9
82.7
90.9
96.6
94.9
98.2
109.2
114.7
117.8
119.7
124.7
130.8
137.1
141.7
148.5
153.2
157.4
163.8
169.4
179.7
191.9
208.5
216.9
235.0
252.2
270.3
283.3
305.1
339.6
380.9
416.2
452.0
490.4
541.8
613.2
681.4
740.6
771.0
816.7
867.3
911.2
943.6
997.9
786.6
837.9
879.6
932.7
938.4
937.2
944.7
954.1
977.5
995.3
1,006.6
1,012.4
1,016.2
1,036.6
1,060.8

30.4
20.1
25.2
26.2
28.3
31.0
34.3
37.2
39.7
45.4
50.6
55.5
58.4
63.2
69.0
75.1
82.1
88.0
94.3
101.6
108.5
115.7
125.0
134.0
141.8
151.1
160.6
172.8
185.4
200.3
216.0
236.4
259.4
284.0
310.7
341.3
373.0
411.9
461.2
515.9
582.3
831.9
934.7
1,027.0
1,128.7
1,227.6
1,345.6
1,457.3
1,592.3
1,066.5
1,167.9
1,267.1
1,394.5
1,419.2
1,441.9
1,468.2
1,500.1
1,540.7
1,576.4
1,610.2
1,641.9
1,674.1
1,708.2
1,747.5

See next page for continuation of table.




308

Change
in
busiProness
Residucers'
durable dential inventories
equipment

Nonresidential
Total

16.7
1.6
9.5
13.4
18.3
10.3
6.2
7.7
11.3
31.5
35.0
47.1
36.5
55.1
60.5
53.5
54.9
54.1
69.7
72.7
71.1
63.6
80.2
78.2
77.1
87.6
93.1
99.6
116.2
128.6
125.7
137.0
153.2
148.8
172.5
202.0
238.8
240.8
219.6
277.7
344.1
416.8
454.8
437.0
515.5
447.3
502.3
664.8
643.1
665.9
712.9
409.6
579.8
661.8
654.1
686.6
667.8
653.0
656.4
685.5
698.5
702,8
764.9
763.4
758.1
772.5

Total

14.9
3.1
9.1
11.2
13.8
8.5
6.9
8.7
12.3
25.1
35.5
42.4
39.5
48.3
50.2
50.5
54.5
55.7
64.0
68.0
69.7
65.1
74.4
75.1
74.7
81.5
87.3
94.2
106.2
114.4
115.4
129.1
143.4
145.7
164.7
191.5
219.2
225.4
225.2
261.7
322.8
388.2
441.9
445.3
491.5
471.8
509.4
597.1
631.8
650.4
673.7
469.5
548.8
616.8
646.8
642.6
648.3
652.3
658.4
647.8
665.8
688.3
692.9
698.1
714.4
722.8

Total

11.0
2.5
6.1
7.7
9.7
6.3
5.4
7.4
10.6
17.3
23.5
26.8
24.9
27.8
31.8
31.9
35.1
34.7
39.0
44.5
47.5
42.4
46.3
48.8
48.3
52.5
55.2
61.4
73.1
83.5
84.4
91.4
102.3
105.2
109.6
123.0
145.9
160.6
162.9
180.0
214.2
259.0
302.8
322.8
369.2
366,7
356.9
416.0
442.9
433.9
446.8
354.9
383.9
435.0
451.3
438.9
431.9
430.6
434.1
422.8
438.2
462.1
464.1
471.5
487.8
493.7

Structures

5.5
1.1
2.2
2.6
3.3
2.2
1.8
2.4
3.3
7.4
8.1
9.5
9.2
10.0
11.9
12.2
13.6
13.9
15.2
18.2
18.9
17.5
18.0
19.2
19.4
20.5
20.8
22.7
27.4
30.5
30.7
32.9
37.1
39.2
40.9
44.5
51.4
57.0
56.3
60.1
66.7
81.0
99.5
113.9
138.5
143.3
124.0
141.1
153.2
138.5
139.5
137.6
127.4
146.6
155.9
151.1
136.1
132.0
134.6
132.7
134.4
143.0
147.7
140.1
142.3
143.8

5.5
1.4
3.9
5.2
6.4
4.1
3.7
5.0
7.3
9.9
15.3
17.3
15.7
17.8
19.9
19.7
21.5
20.8
23.9
26.3
28.6
24.9
28.3
29.7
28.9
32.1
34.4
38.7
45.8
53.0
53.7
58.5
65.2
66.1
68.7
78.5
94.5
103.6
106.6
119.9
147.4
178.0
203.3
208.9
230.7
223.4
232.8
274.9
289.7
295.4
307.3
217.3
256.5
288.4
295.5
287.8
295.7
298.5
299.4
290.1
303.8
319.1
316.3
331.3
345.5
349.9

4.0
.6
3.0
3.5
4.1
2.2
1.4
1.4
1.7
7.8
12.1
15.6
14.6
20.5
18.4
18.6
19.4
21.1
25.0
23.5
22.2
22.7
28.1
26.3
26.4
29.0
32.1
32.8
33.1
30.9
31.1
37.7
41.2
40.5
55.1
68.6
73.3
64.8
62.3
81.7
108.6
129.2
139.1
122.5
122.3
105.1
152.5
181.1
188.8
216.6
226.9
114.7
164.9
181.8
195.5
203.6
216.4
221.8
224.4
225.0
227.6
226.2
228.8
226.6
226.5
229.1

1.7
-1.6
2,2
4.5
1.8
-.6
-1.0
-1.0
6.4
-.5
4.7
-3.1
6.8
10.2
3.1
.4
-1.6
5.7
4.6
1.4
-1.5
5.8
3.1
2.4
6.1
5.8
5.4
9.9
14.2
10.3
7.9
9.8
3.1
7.8
10.5
19.6
15.4
-5.6
16.0
21.3
28.6
13.0
-8.3
24.0
-24.5
-7.1
67.7
11.3
15.5
39.2
-59.9
31.0
45.0
7.2
44.0
19.5

-2io
37.7
32.7
14,5
72.0
65.3
43.7
49.7

TABLE B-l.—Gross national product, 1929-88—Continued
[Billions of dollars, except as noted; quarterly data at seasonally adjusted annual rates]
Net exports of goods and
services
Year or
quarter

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953 .
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1
1983
1984
1985
1986
1987
1982: IV
1983: IV
1984: IV
1985: IV
1986: 1
II
Ill
IV
1987:1
II
Ill
IV
1988:1
II
Ill

Government purchases of goods and
services
Federal

Net
exports Exports m ports Total
1.1
.4
1.2

7.1
2.4
4.6
5.4
1.8
6.1
1.5
.2
5.0
-1.9
4.6
-1.7
5.5
5
7.4
15.2
7.8
20.3
11.9
17.5
7.0
16.4
6.5
2.2
14.5
19.8
4.5
19.2
3.2
18.1
1.3
18.8
2.6
3.0
21.1
25.2
5.3
7.3
28.2
24.4
3.3
25.0
1.5
29.9
5.9
7.2
31.1
6.9
33.1
35.7
8.2
40.5
10.9
9.7
42.9
7.5
46.6
7.4
49.5
54.8
5.5
60.4
5.6
8.5
68.9
72.4
6.3
81.4
3.2
16.8 114.1
16.3 151.5
31.1 161.3
18.8 177.7
1.9 191.6
4.1 227.5
18.8 291.2
32.1 351.0
33.9 382.8
26.3 361.9
-6.1 352.5
-58.9 383.5
-78.0 370.9
-104.4 378.4
-123.0 428.0
14.1 335.9
-25.8 364.7
-67.9 385.7
-103.2 369.2
-93.0 376.9
-101.2 373.9
-109.1 377.8
-114.3 385.2
-119.1 395.3
-122.2 416.8
-125.2 440.4
-125.7 459.7
-112.1 487.8
-90.4 507.1
-80.0 536.1

5.9
2.1
3.4
3.7
4.7
4.8
6.5
7.2
7.9
7.3
8.3
10.6
9.8
12.3
15.3
16.0
16.8
16.3
18.1
19.9
20.9
21.1
23.5
24.0
23.9
26.2
27.5
29.6
33.2
39.1
42.1
49.3
54.7
60.5
66.1
78.2
97.3
135.2
130.3
158.9
189,7
223.4
272.5
318.9
348.9
335.6
358.7
442.4
448.9
482.8
551.1
321.9
390.5
453.6
472.4
469.9
475.1
486.9
499.4
514.4
539.0
565.6
585.4
599.9
597.5
616.0

8.9
8.3
13.6
14.2
25.0
59.9
88.9
97.1
83.0
29.1
26.4
32.6
39.0
38.8
60.4
75.8
82.8
76.0
75.3
79.7
87.3
95.4
97.9
100.6
108.4
118.2
123.8
130.0
138.6
158.6
179.7
197.7
207.3
218.2
232.4
250.0
266.5
299.1
335.0
356.9
387.3
425.2
467.8
530.3
588.1
641.7
675.0
735.9
820.8
871.2
924.7
671.8
676.1
764.5
856.7
847.8
868.8
881.8
886.5
903.8
915.7
932.2
947.3
945.2
961.6
955.3

Total
1.5
2.2
5.2
6.1
17.0
52.0
81.4
89.4
74.8
19.2
13.6
17.3
21.1
19.1
38.6
52.7
57.9
48.4
44.9
46.4
50.5
54.5
54.6
54.4
58.2
64.6
65.7
66.4
68.7
80.4
92.7
100.1
100,0
98.8
99.8
105.8
106.4
116.2
129.2
136.3
151.1
161.8
178.0
208.1
242.2
272.7
283.5
310.5
355.2
366.2
382.0
293.2
276.1
326.0
376.6
356.6
368.7
372.7
366.7
372.7
377.5
386.3
391.4
377.7
382.2
367.7

Nation- Nonal
dedefense fense

1.3
2.3
13.8
49.4
79.8
87.5
73.7
16.4
10.0
11.3
13.9
14.3
33.8
46.2
49.0
41.6
39.0
40.7
44.6
46.3
46.4
45.3
47.9
52.1
51.5
50.4
51.0
62.0
73.4
79.1
78.9
76.8
74.1
77.4
77.5
82.6
89.6
93.4
100.9
108.9
121.9
142.7
167.5
193.8
214.4
234.3
259.1
277.5
295.3
205.4
221.5
244.1
268.6
266.8
277.2
288.0
278.1
287.3
294.8
299.8
299.2
298.4
298.8
294.3

3.9
3.9
3.2
2.6
1.6
2.0
1.1
2.8
3.6
6.0
7.2
4.7
4.8
6.5
8.9
6.8
6.0
5.7
5.9
8.3
8.2
9.2
10.2
12.6
14.2
16.0
17.7
18.3
19.3
21.0
21.1
22.0
25.8
28.4
28.9
33.6
39.6
42.9
50.3
52.9
56.1
65.4
74.8
78.9
69.1
76.2
96.0
88.7
86.7
87.7
54.6
81.9
108.0
89.9
91.5
84.7
88.7
85.4
82.6
86.4
92.2
79.3
83.4
73.4

State
and
local
7.4
6.1
8.3
8.1
8.0
7.8
7.5
7.6
8.2
9.9
12.8
15.3
18.0
19.8
21.8
23.1
24.8
27.7
30.3
33.3
36.9
40.8
43.3
46.1
50.2
53.5
58.1
63.5
69.9
78.2
87.0
97.6
107.2
119.4
132.5
144.2
160.1
182.9
205.9
220.6
236.2
263.4
289.9
3222
345.9
369.0
391.5
425.3
465.6
505.0
542.8
378.7
400.0
438.5
480.1
491.2
500.2
509.1
519.7
531.1
538.2
546.0
555.9
567.5
579.4
587.6

Final
sales

102.2
57.6
90.9
98.3
121.0
157.2
193.4
-212.3
214.4
206.0
235.7
256.9
263.4
281.4
323.2
•348.6
371.1
374.1
400.2
423.6
449.6
458.3
490.0
512.3
531.4
568.5
601.1
644.4
695.2
757.8
806.1
884.8
954.1
1,012.3
1,094.9
1,202.3
1,339.7
1,457.4
1,604.1
1,766.8
1,969.2
2,221.0
2,495.2
2,740.3
3,028.6
3,190.5
3,412.8
3,704.5
4,003.6
4,224.7
4,487.5
3,272.4
3,514.8
3,806.8
4,100.7
4,136.5
4,188.1
4,267.7
4,306.6
4,354.1
4,451.5
4,553.5
4,590.7
4,659.2
4,780.1
4,859.3

. Percent change from
preceding period
Gross
domestic Gross
Gross
nation- Final domestic
pural
chases >
pursales
prodchases >
uct
102.8
55.7
90.1
98.7
124.1
158.8
194.6
213.0
213.9
204.5
223.3
254.7
253.8
286.0
329.0
348.4
370.3
370.0
402.9
422.9
443.7
453.5
494.3
509.4
526.6
567.7
598.7
638.9
695.4
764.5
809.0
887.2
958.3
1,007.0
1,096.4
1,209.6
1,342.5
1,456.5
1,567.4
1,764.0
1,988.6
2,245.6
2,489.4
2,699.8
3,018.7
3,139.7
3,411.8
3,831.1
4,092.8
4,344.7
4,649.7
3,198.5
3,571.6
3,919.7
4,211.2
4,273.4
4,308.7
4,377.6
4,418.9
4,510.9
4,606,3
4,693.2
4,788,4
4,836.6
4,914.2
4,989.0

1
Gross national product (GNP) less exports of goods and services plus imports of goods and services.
Source: Department of Commerce, Bureau of Economic Analysis.




309

42
7.0
10.0
25.0
26.6
21.2
9.7
.9

las

11.2
-.5
10.7
15.7
5.5
5.7
9^0
5.5
5.3
1.3
8.5
3.9
3.6
7.6
5.6
7.1
8.5
9.5
5.8
9.3
8.0
5.4
8.6
10.0
12.1
8.3
8.5
11.5
11.7
13.0
11.5
8.9
11.7
3.7
7.6
10.8
6.4
5.6
6.8
4.2
12.4
4.7
6.2
7.2
2.6
5.9
3.4
8.4
8.7
7.7
8.6
5.4
8.7
7.3

-5.5
5.4
8.1
23.2
29.9
23.0
9.8
1.0
-3.9
14.4
9.0
2.5
6.8
14.8
7.9
6.5
.8
7.0
5.8
6.1
1.9
6.9 °
4.6
3.7
7.0
5.7
7.2
7.9
9.0
6.4
9.8
7.8
6.1
8.2
9.8
11.4
8.8
10.1
10.1
11.5
12.8
12.3
9.8
10.5
5.3
7.0
8.5
8.1
5.5
6.2
11.0
7.8
7.0
5.5
3.5
5.1
7.8
3.7
4.5
9.3
9.5
3.3
6.1
10.8
6.8

42
7.3
9.5
25.7
28.0
22.6
9.5
.4
-4.4
9.2
14.0
-.3
12.7
15.0
5.9
6.3

l!s

5.0
4.9
2.2
9.0
3.1
3.4
7.8
5.5
6.7
8.8
9.9
5.8
9.7
8.0
5.1
8.9
10.3
11.0
8.5
7.6
12.5
12.7
12.9
10.9
8.5
11.8
4.0
8.7
12.3
6.8
6.2
7.0
4.3
13.1
5.5
8.3
6.0
3.3
6.6
3.8
8.6
8.7
7.8
8.4
4.1
6.6
6.2

TABLE B-2.—Gross national product in 1982 dollars, 1929-88
[Billions of 1982 dollars, except as noted; quarterly data at seasonally adjusted annual rates]
Gross private domestic investment

Personal consumption
expenditures
Year or
quarter

1929
1933

Gross
national
product

709.6
498.5
716.6
1939 .
1940
772.9
909.4
1941
1942
1,080.3
1943
, .... 1,276.2
1944
1,380.6
1945
1,354.8
1946
1,096.9
1,066.7
1947
1,108.7
1948
1949
1,109.0
1950
1,203.7
1,328.2
1951
1952 ....
1,380.0
1953
1,435.3
1,416.2
1954
1955,
1,494.9
1956
1,525.6
1957
1,551.1
1958
1,539.2
1959
1,629.1
I960
1,665.3
1961 .
1,708.7
1962
1,799.4
1,873.3
1963
1964
1,973.3
1965
2,087.6
1966
2,208.3
1967
2,271.4
1968
2,365.6
1969
2,423.3
1970
2,416.2
1971
2,484.8
1972
2,608.5
1973
2,744.1
1974
2,729.3
1975
2,695.0
1976
2,826.7
1977 ....
2,958.6
1978
3,115.2
1979
3,192.4
3,187.1
1980
1981
3,248.8
1982
3,166.0
3,279.1
1983 .. .
1984
3,501.4
1985
3,618.7
1986
3,721.7
1987
3,847.0
1982- IV
3,159.3
1983- IV
3,365.1
1984: IV
3,535.2
1985: IV
3,662.4
1986:1
3,719.3
II.,..
3,711.6
Ill
3,721.3
IV
3,734.7
1987- 1 ..
3,776.7
II
3,823.0
Ill
3,865.3
IV
3,923.0
1988: 1
3,956.1
II
3,985.2
III,..
4,009.4

Fixed investment
Change
in
busiProness
Residucers'
durable dential inventories
equipment

Nonresidential
Total

471.4
378.7
480.5
502.6
531.1
527.6
539.9
557.1
592.7
655.0
666.6
681.8
695.4
733.2
748.7
771.4
802.5
822.7
873.8
899.8
919.7
932.9
979.4
1,005.1
1,025.2
1,069.0
1,108.4
1,170.6
1,236.4
1,298.9
1,337.7
1,405.9
1,456.7
1,492.0
1,538.8
1,621.9
1,689.6
1,674.0
1,711.9
1,803.9
1,883.8
1,961.0
2,004.4
2,000.4
2,024.2
2,050.7
2,146.0
2,249.3
2,354.8
2,455.2
2,521.0
2,078.7
2,191.9
2,281.1
2,386.9
2,415.1
2,440.9
2,478.6
2,486.2
2,490.2
2,516.6
2,545.2
2,531.7
2,559.8
2,579.0
2,603.8

Durable
goods

40.3
20.7
35.7
40.6
46.2
31.3
28.1
26.3
28.7
47.8
56.5
61.7
67.8
80.7
74.7
73.0
80.2
81.5
96.9
92.8
92.4
86.9
96.9
98.0
93.6
103.0
111.8
120.8
134.6
144.4
146.2
161.6
167.8
162.5
178.3
200.4
220.3
204.9
205.6
232.3
253.9
267.4
266.5
245.9
250,8
252.7
283.1
323.1
355.1
385.0
390.9
262.0
300.5
333.1
356.4
363.3
374.2
405,1
397.3
378.3
391.3
406.5
387.6
401.1
410.6
410.4

Nondurable
goods

211.4
181.8
248.0
259.4
275.6
279.1
284.7
297.9
323.5
344.2
337.4
338.7
342.3
352.8
362.9
376.6
388.2
393.8
413.2
426.9
434.7
439.9
455.8
463.3
470.1
484.2
494.3
517.5
543.2
569.3
579.2
602.4
617.2
632,5
640.3
665.5
683,2
666.1
676.5
708.8
731.4
753.7
766.6
762.6
764.4
771.0
800.2
825.9
847.4
879.5
890.5
778.6
812.7
831.2
858.3
870.4
880.9
881.4
885.3
889.9
889.8
891.9
890.5
892.7
893.6
904.5

Services

Total

219.7
176.2
196.7
202.7
209.3
217.2
227.2
232.9
240.5
262.9
272.6

281.4
285.3
299.8
311.1
321.9
334.1
347.4
363.6
380.1
392.6
406.1
426.7
443.9
461.4
481.8
502.3
532.3
558.5
585.3
612.3
641.8
671.7
697.0
720.2
756.0
786.1
803.1
829.8
862.8
898.5
939.8
971.2
991.9
1,009.0
1,027.0
1,062.7
1,100.3
1,152,3
1,190.7
1,239.5
1,038.1
1,078.6
1,116.8
1,172.2
1,181.4
1,185.8
1,192.0
1,203,6
1,222.0
1,235.5
1,246,8
1,253.6
1,265.9
1,274.8
1,288.9

See next page for continuation of table.




310

139.2
22.7

86.0
111.8
138.8
76.7
50.4
56.4
76.5
178.1
177.9
208.2
168.8
234.9
235.2
211.8
216.6
212.6
259.8
257.8
243.4
221.4
270.3
260.5
259.1
288.6
307.1
325.9
367.0
390.5
374.4
391.8
410.3
381.5
419.3
465.4
520.8
481.3
383.3
453.5
521.3
576.9
575.2
509.3
545.5
447.3
504.0
658.4
637.0
643.5
674.8
408.8
577.2
655.7
648.0
678.0
652.1
627.6
616.5
646.4
660.1
667.9
724.7
728.9
715.1
726.1

Total

128.4
33.5
82.1
97.4
111.1
64.7
49.7
61.6
84.9
150.2
178.9
196.0
178.4
210.8
204.3
201.8
213.8
217.3
243.5
244.9
240.4
224.8
253.8
252.7
251.8
272.4
290.5
310.2
341.8
353.7
345.6
370.7
385.1
373.3
399.7
443.7
480.8
448.0
396.1
431.4
492.2
540.2
560.2
516.2
521.7
471.8
510.4
596.1
627.9
628.1
640.4
468.1
550.3
614.0
640.4
632.4
628.5
624.6
627.0
616.6
632.3
654.9
657.6
662.9
679.7
686.6

Total

93.0
25.8
53.2
65.0
76.6
47.4
39.4
52.6
74.2
105.5
121.7
127.4
114.8
124.0
131.7
130.6
140.1
137.5
151.0
160.4
161.1
143.9
153.6
159.4
158.2
170.2
176.6
194.9
227.6
250.4
245.0
254.5
269.7
264.0
258.4
277.0
317.3
317.8
281.2
290.6
324.0
362.1
389.4
379.2
395.2
366.7
361.2
425.2
453.5
433.1
445.1
352.3
390.4
444.4
460.9
446.8
432.8
425.6
427.3
418.2
434.8
462.8
464.8
473.4
490.2
495.0

Structures
54.7
14.3
25.2
28.5
33.4
20.9
15.6
20.4
27.0
50.9
47.5
50.5
49.3
52.8
56.5
57.3
62.3
64.9
69.4
75.5
75.2
70.6
71.9
76.1
77.7
81.3
81.6
87.9
101.8
108.0
105.4
108.0
112.9
111.1
107.3
109.5
117.7
115.2
102.8
104.4
108.3
119.3
130.6
136.2
148.8
143.3
127.2
143.8
149.5
129.3
125.5
138.3
131.6
147.1
149.9
145.1
126.7
121.7
123.8
121.0
120.9
128.0
132.1
124.0
125.0
125.8

38.4
11.5
28.0
36.5
43.2
26.5
23.8
32.1
47.2
54.7
74.2
76.9
65.5
71.2
75.2
73.3
77.7
72.7
81.7
84.9
85.9
73.3
81.7
83.3
80.5
88.9
95.1
107.0
125.8
142.4
139.6
146.5
156.8
152.9
151.0
167,5
199.6
202.7
178.4
186.2
215.7
242.8
258.8
243.0
246.4
223.4
233.9
281.4
304.0
303.8
319.6
214.1
258.8
297.3
311.1
301.7
306.1
303.9
303.5
297.2
313.8
334.7
332.7
349.4
365.1
369.2

35.4
7.7
28.9
32.5
34.4
17.3
10.4
9.0
10.7
44.7
57.2
68.6
63.6
86.7
72.6
71.2
73.8
79.8
92.4
84.4
79.3
81.0
100.2
93.3
93.6
102.2
113.9
115.3
114.2
103.2
100.6
116.2
115.4
109.3
141.3
166.6
163.4
130.2
114.9
140.8
168.1
178.0
170.8
137,0
126.5
105.1
149.3
170.9
174.4
195.0
195.2
115.8
159.9
169.6
179.4
185.5
195.7
199.0
199.7
198.4
197.6
192.1
192.7
189.5
189.6
191.6

10.8
-10.7
3.9
14.4
27.8
12.0
.7
-5.2
-8.4
27.9
-1.0
12,3
-9.7
24.2
30.8
10.0
2.8
-4.8
16.3
12.9
3.0
-3.4
16.5
7.7
7.3
16.2
16.6
15.7
25.2
36.9
28.8
21.0
25.1
8.2
19.6
21.8
40.0
33.3
-12.8
22.1
29.1
36.8
15.0
-6,9
23.9
-24.5
-6.4
62.3
9.1
15.4
34.4
=-59.3
27.0
41.7
7,7
45.7
23.6
3.0
-10.5
29.8
27.8
13.0
67.1
66.D
35.3
39.5

TABLE B-2.—Gross national product in 1982 dollars, 1929-88—Continued
[Billions of 1982 dollars, except as noted; quarterly data at seasonally adjusted annual rates]
Net exports of goods and
services
Year or
quarter

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961 ..
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1982: IV
1983: IV
1984: IV
1985: IV
1986- 1
II
Ill
IV
1987:1
II
Ill
IV
1988:1

II
Ill

Federal

Net

exports Exports Imports Total

4.7
-1.4
6.1
8.2
3.9
-7.7
-23.0
-23.8
-18.9
27.0
42.4
19.2
18.8
4.7
14.6
6.9
-2.7
2.5
.0
4.3
7.0
-10.3
-18.2
-4.0
-2.7
-7.5
-1.9
5.9
-2.7
-13.7
-16.9
-29.7
-34.9
-30.0
-39.8
-49.4
-31.5
.8
18.9
-11.0
-35.5
-26.8
3.6
57.0
49.4
26.3
-19.9
-84.0
-104.3
-137.5
-128.9
11.7
-46.2
-94.8
-125.3
-115.7
-140.2
-151.8
-142.4
-132.8
-126.0
-130.7
-126.0
-109.0
-92.6
-93.9

42.1
22.7
36.2
40.0
42.0
29.1
25.1
27.3
35.2
69.0
82.3
66.2
65.0
59.2
72.0
70.1
66.9
70.0
76.9
87.9
94.9
82.4
83.7
98.4
100.7
106.9
114.7
128.8
132.0
138.4
143.6
155.7
165.0
178.3
179.2
195.2
242.3
269.1
259.7
274.4
281.6
312.6
356.8
388.9
392.7
361.9
348.1
371.8
367.2
378.4
427.8
336.0
355.5
376.6
367.4
374.5
372.1
379.1
387.8
394.9
416.4
440.9
459.2
486.2
496.9
514.0

37.4
24.2
30.1
31.7
38.2
36.9
48.0
51.1
54.1
42.0
39.9
47.1
46.2
54.6
57.4
63.3
69.7
67.5
76.9
83.6
87.9
92.8
101.9
102.4
103.3
114.4
116.6
122.8
134.7
152.1
160.5
185.3
199.9
208.3
218.9
244.6
273.8
268.4
240.8
285.4
317.1
339.4
353.2
332.0
343.4
335.6
368.1
455.8
471.4
515.9
556.7
324.3
401.6
471.4
492.6
490.2
512.4
530.9
530.2
527.7
542.3
571.6
585.2
595.1
589.5
607.9

94.2

98.5
144.1
150.2
235.6
483.7
708.9
790.8
704.5
236.9
179.8
199.5
226.0
230.8
329.7
389.9
419.0
378.4
361.3
363.7
381.1
395.3
397.7
403.7
427.1
449.4
459.8
470.8
487.0
532.6
576.2
597.6
591.2
572.6
566.5
570.7
565.3
573.2
580.9
580.3
589.1
604.1
609.1
620.5
629.7
641.7
649.0
677.7
731.2
760.5
780.2
660.1
642.2
693.2
752.7
741.8
758.8
766.9
774.5
772.9
772.2
782.9
792.6
776.4
783.8
773.5

Total

National
defense

Nonde-

fense

18.3
27.0
53.8
63.6
153.0
407.1
638.1
722.5
634.0
159.3
91.9
106.1
119.5
116.7
214.4
272.7
295.9
245.0
217.9
215.4
224.1
224.9
221.5
220.6
232.9
249.3
247.8
244.2
244.4
273.8
304.4
309.6
295.6
268.3
250.6
246.0 "'185T
230.0 171.0
226.4 163.3
226.3 161.1
224.2 157.5
231.8 159.2
233.7 160.7
236.2 164.3
246.9 171.2
259.6 180.3
272.7 193.8
275.1 206.9
290.8 218.5
326.0 237.2
333.4 251.4
339.0 264.9
289.5 201.4
266.0 211.6
300.5 225.3
340.6 241.4
322.7 241.1
333.6 250.8
336.7 260.7
340.5 253.1
334.0 257.0
332.1 264.8
342.1 269.5
347.7 268.2
327.8 264.6
331.6 263.6
320.1 256.4

State
and
local

so!?"
59.1
63.1
65.2
66.8
72.7
73.0
71.9
75.7
79.3
78.9
68.2
72.3
88.8
82.0
74.1
88.2
54.4
75.2
99.2
81.6
82.8
76.0
87.4
77.0
67.3
72.6
79.5
63.2
67.9
63.7

1
GNP less exports of goods and services plus imports of goods and services.
Source: Department of Commerce, Bureau of Economic Analysis.




Percent change from
preceding period

Government purchases of goods and
services

311

75.9
71.5
90.3
86.6
82.6
76.7
70.8
68.3
70.5
77.6
87.9
93.4
106.5
114.2
115.4
117.3
123.1
133.4
143.4
148.3
157.0
170.4
176.2
183.1
194.2
200.1
212.0
226.6
242.5
258.8
271.8
288.0
295.6
304.3
315.9
324.7
335.3
346.8
354.6
356.0
357.2
370.4
373.0
373.6
370.1
369.0
373.9
387.0
405.2
427.1
441.2
3'70.6
376.2
392.7
412.1
419.1
425.2
430.2
434.0
438.9
440.1
440.8
444.9
448.7
452.2
453.4

Final
sales

698.7
509.2
712.7
758.5
881.6
1,068.3
1,275.5
1,385.7
1,363.3
1,069.0
1,067.7
1,096.4
1,118.7
1,179.5
1,297.4
1,370.0
1,432.5
1,421.0
1,478.6
1,512.7
1,548.1
1,542.6
1,612.6
1,657.5
1,701.4
1,783.3
1,856.7
1,957.6
2,062.4
2,171.5
2,242.6
2,344.6
2,398.1
2,407.9
2,465.2
2,586.8
2,704.1
2,696.0
2,707.8
2,804.6
2,929.5
3,078.4
3,177.4
3,194.0
3,225.0
3,190.5
3,285.5
3,439.1
3,609.6
3,706.3
3,812.6
3,218.6
3,338.1
3,493.5
3,654.7
3,673.6
3,688.0
3,718.3
3,745.2
3,746.9
3,795.2
3,852.2
3,855.9
3,890.1
3,949.9
3,969.9

Gross
domestic Gross
purnationchases *
al
product

Final
sales

704.9
499.9 -2.1 -3.1
7.9
710.5
6.3
6.4
7.8
764.6
16.2
17.7
905.5
21.2
18.8
1,088.0
19.4
1,299.2
18.1
1,404.3
8.6
8.2
1,373.7 -1.9
-1.6
1,069.9 -19.0 -21.6
1,024.3 -2.8
~2.7
1,089.5
3.9
1,090.2
2.0
.0
1,199.0
5.4
8.5
10.0
1,313.6
10.3
5.6
1,373.1
3.9
1,438.0
4.6
4.0
1,413.7 -1.3
-.8
4.1
1,494.9
5.6
1,521.3
2.3
2.1
1,544.2
2.3
1.7
1,549.6
-.8
1,647.3
4!5
5.8
1,669.3
2.8
2.2
1,711.3
2.6
2.6
4.8
1,807.0
5.3
4.1
4.1
1,875.3
5.4
5.3
1,967.3
5.4
2,090.3
5.8
2,222.1
5.3
5.8
3.3
2.9
2,288.3
4.5
4.1
2,395.3
2.3
2.4
2,458.1
.4
2,446.2
2,524.6
l!s 2.4
4.9
2,658.0
5.0
2,775.7
4.5
5.2
2,728.5
-.3
.4
2,676.1 -~U
2,837.7
3.6
4.9
2,994.1
4.5
4.7
3,142.0
5.1
5.3
3.2
2.5
3,188.8
.5
3,130.1
3,199.4
1.0
~L9
3,139.7 -2.5 -1.1
3.0
3.6
3,299.1
3,585.4
4.7
6.8
5.0
3.4
3,723.0
2.7
3,859.3
2.8
3,975.9
2.9
3.4
7.1
3,147.6
.6
3,411.3
3.8
7.3
3,630.0
4.0
1.7
3,787.6
1.6
3.0
2.1
6.4
3,834.9
1.6
-.8
3,851.8
3.3
3,873.0
1.0
2.9
3,877.2
1.4
.2
3,909.5
4.6
5.3
3,949.0
5.0
3,996.0
6.1
4.5
4,049.0
6.1
3.6
3.4
4,065.1
6.3
3.0
4,077.9
4,103.4
2.0
2.5

Gross
domestic
purchases 1

-1.9
7.9
7.6
18.4
20.1
19.4
8.1
-2.2
-22.1
-4.3
6.4
.1
10.0
9.6
4.5
4.7
-1.7
5.7
1.8
1.5
.4
6.3
1.3
2.5
5.6
3.8
4.9
6.3
6.3
3.0
4.7
2.6
-.5
3.2
5.3
4.4
-1.7
-1.9
6.0
5.5
4.9
1.5
-1.8
2.2
-1.9
5.1
8.7
3.8
3.7
3.0
.6
8.6
2.7
4.8
5.1
1.8
2.2
.4
3.4
4.1
4.8
5.4
1.6
1.3
2.5

TABLE B-3.—Implicit price deflators for gross national product, 1929-88
[Index numbers, 1982-100, except as noted; quarterly data seasonally adjusted]
Personal consumption
expenditures

Year or quarter

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947 ....
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
I960
1961 ....
1962
1963 ..
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980 ... .
1981
1982
1983
1984
1985 .,
1986
1987
1982- IV
1983- tV.
1984: IV
1985: IV
1986:1
II
Ill
IV
1987- 1 .
||
III
IV
1988-1
II..
III.

. .

Gross
national
product

14.6
11.2
12.7
13.0
13.8
14.7
15.1
15.3
15.7
19.4
22.1
23.6
23.5
23.9
25.1
25.5
25.9
26.3
27.2
28.1
29.1
29.7
30.4
30.9
31.2
31.9
32.4
32.9
33.8
35.0
35.9
37.7
39.8
42.0
44.4
46.5
49.5
54.0
59.3
63.1
67.3
72.2
78.6
85.7
94.0
100.0
103.9
107.7
110.9
113.9
117.7
101.7
105.4
109.0
112.2
112.4
113.4
114.7
115.3
116.3
117.3
118.2
118.9
119.4
121.0
122.4

Fixed investment

Nonresidential
Total

16.4
12.1
13.9
14.1
15.2
16.8
18.4
19.4
20.2
22.0
24.3
25.7
25.6
26.2
27.8
28.4
29.0
29.1
29.5
30.1
31.0
31.6
32.3
32.9
33.3
33.9
34.4
35.0
35.6
36.7
37.6
39.3
41.0
42.9
44.9
46.7
49.6
54.8
59,2
62.6
66.7
71.6
78.2
86.6
94.6
100.0
104.1
108.1
111.6
114.3
119.5
101.8
105.7
109.3
113.1
113.4
113.6
114.7
115.7
117.3
118.9
120.2
121.5
122.2
123.9
125.2

NonDurable durable Services
goods goods

22.9
16.8
18.7
19.2
20.9
22.0
23.3
25.4
27.7
33.0
36.1
37.1
36.9
38.1
40.0
40.1
40.8
39.4
40.1
41.2
42.9
42.8
44.2
44.4
44.8
45.7
46.3
47.0
47.1
47.5
48.3
50.1
51.4
52.7
54.7
55.5
56.6
60.4
65.9
69.5
72.7
76.9
82.1
89.2
95.7
100.0
102.1
103.8
104.8
105.6
107.9
100.7
103.1
104.1
104.7
105.0
105.0
106.1
106.2
106.7
107.5
108.6
108.9
109.1
109.6
110.4

17.8
12.2
14.2
14.3
15.5
18.2
20.6
21.6
22.2
24.0
26.9
28,5
27.7
27.8
30.1
30.5
30.4
30.4
30.2
30.6
31.5
32.2
32.6
33.1
33.5
33.8
34.3
34.7
35.3
36.6
37.5
39.0
40.9
42.7
44.2
45.8
49.7
57.2
61.5
63.8
67.1
71.9
80.0
89.4
96.9
100.0
102.1
105.0
107.5
107.3
112.1
101.0
103.1
105.8
108.7
107.8
106.4
107.2
107.8
109,8
111.9
112.9
113.7
113.8
116.0
117.3

See next page for continuation of table.




Gross private domestic investment »

312

13.8
11.4
12.8
12.9
13.5
14.3
15.1
16.0
16.5
17.3
18.6
19.7
20.5
21.1
22.2
23.3
24.6
25.3
25.9
26.7
27.6
28.5
29.3
30.2
30.7
31.4
32.0
32.5
33.2
34.2
35.3
36.8
38.6
40.7
43.1
45.1
47.4
51.3
55.6
59.8
64.8
69.8
75.6
83.9
92.6
100.0
106.2
111.6
116.8
122.4
128.5
102.7
108.3
113.5
119.0
120.1
121.6
123.2
124.6
126.1
127.6
129.1
131.0
132.2
134.0
135.6

Total

11.6
9.4
11.1
11.5
12.4
13.2
13.8
14.2
14.5
16.7
19.8
21.7
22.2
22.9
24.6
25.0
25.5
25.6
26.3
27.8
29.0
28.9
29.3
29.7
29.7
29.9
30.1
30.4
31.1
32.4
33.4
34.8
37.2
39.0
41.2
43.2
45.6
50.3
56.9
60.7
65.6
71.9
78.9
86.3
94.2
100.0
99.8
100.2
100.6
103.5
105.2
100.3
99.7
100.5
101.0
101.6
103.2
104.4
105.0
105.1
105.3
105.1
105.4
105.3
105.1
105.3

Total

11.8
9.8
11.5
11.9
12.7
13.3
13.8
14.0
14.3
16.4
19.3
21.0
21.7
22.4
24.2
24.4
25.1
25.2
25.8
27.7
29.5
29.5
30.2
30.6
30.5
30.9
31.3
31.5
32.1
33.3
34.4
35.9
37.9
39.9
42.4
44.4
46.0
50.5
57.9
61.9
66.1
71.5
77.8
85.1
93.4
100.0
98.8
97.9
97.7
100.2
100.4
100.7
98.3
97.9
97.9
98.2
99.8
101.2
101.6
101.1
100.8
99.9
99.8
99.6
99.5
99.7

Structures

10.0
7.6
8.8
9.0
9.7
10.7
11.4
11.6
12.3
14.5
17.1
18.9
18.6
18.8
21.1
21.3
21.8
21.4
21.8
24.1
25.2
24.8
25.0
25.2
25,0
25.2
25.5
25.9
26.9
28.2
29.1
30.4
32.9
35.2
38.1
40.6
43.7
49.5
54.7
57.6
61.6
67.9
76.2
83.6
93.1
100.0
97.5
98.2
102.5
107.1
111.1
99.5
96.8
99.6
104.0
104.1
107.5
108.5
108.7
109.6
111.2
111.7
111.8
113.0
113.8
114.3

Producers'
durable
equipment
14.3
12.5
13.9
14.2
14.9
15.3
15.4
15.6
15.4
18.2
20.7
22.5
24.0
25.0
26.4
26.9
27.7
28.6
29.3
31.0
33.3
34.0
34.7
35.6
35.9
36.1
36.2
36.2
36.4
37.2
38.4
39.9
41.5
43.2
45.5
46.8
47.3
51.1
59.7
64.4
68.3
73.3
78.6
86.0
93.7
100.0
99.5
97.7
95.3
97.2
96.2
101.5
99.1
97.0
95.0
95.4
96.6
98.2
98.7
97.6
96.8
95.3
95.1
94.8
94.6
94.8

Residential

11.2
8.1
10.5
10.9
11.9
12.8
13.8
14.9
15.8
17.5
21.1
22.8
23.0
23.7
25.4
26.1
26.3
26.4
27.0
27.9
28.0
28.0
28.0
28.2
28.2
28.3
28.2
28.5
29.0
29.9
30.9
32.5
35.6
37.0
39.0
41.2
44.8
49.8
54.2
58.0
64.6
72.6
81.4
89.4
96.6
100.0
102.2
106.0
108.3
111.1
116.2
99.1
103.1
107.2
109.0
109.8
110.6
111.4
112.4
113.4
115.2
117.7
118.7
119.5
119.5
119.6

TABLE B-3.—Implicit price deflators for gross national product, 1929-88—Continued
[Index numbers, 1982=100, except as noted; quarterly data seasonally adjusted]
Export s and
imports (
and ser vices l
Year or quarter
Exports

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967 .
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1982: IV
1983- IV
1984: IV
1985: IV
1986- 1
11
III
IV
1987- 1
||
III
IV
1988: 1
II
Ill

16.8
10.7
12.7
13.6
14.6
17.2
18.5
20.2
21.1
22.0
24.6
26.5
25.2
24.4
27.4
27.4
27.0
26.9
27.5
28.6
29.7
29.6
29.9
30.4
30.9
31.0
31.1
' 31.4
32.5
33.7
34.5
35.2
36.6
38.7
40.4
41.7
47.1
56.3
62.1
64.8
68.0
72.8
81.6
90.2
97.5
100.0
101.3
103.2
101.0
100.0
100.0
100.0
102.6
102.4
100.5
100.6
100.5
99.6
99.3
100.1
100.1
99.9
100.1
100.3
102.1
104.3

Imports

15.9
8.6
11.3
11.6
12.3
13.1
13,6
14.1
14.6
17.4
20.9
22.4
21.2
22.5
26.7
25.3
24.1
24.1
23.5
23.8
23.8
22.7
23.1
23.4
23.1
22.9
23.6
24.1
24.7
25.7
26.2
26.6
27.4
29.0
30.2
32.0
35.5
50.4
54.1
55.7
59.8
65.8
77.1
96.0
101.6
100.0
97.4
97.1
95.2
93.6
99.0
99.3
97.2
96.2
95.9
95.9
92.7
91.7
94.2
97.5
99.4
98.9
100.0
100.8
101.4
101.3

Government purchases of goods and services
Federal
Total

9.4
8.4
9.4
9.5
10.6
12.4
12.5
12.3
11.8
12.3
14.7
16.3
17.3
16.8
18.3
19.4
19.8
20.1
20.8
21.9
22.9
24.1
24.6
24.9
25.4
26.3
26.9
27.6
28.5
29.8
31.2
33.1
35.1
38.1
41.0
43.8
47.1
52.2
57.7
61.5
65.8
70.4
76.8
85.5
93.4
100.0
104.0
108.6
112.3
114.6
118.5
101.8
105.3
110.3
113.8
114.3
114.5
115.0
114.5
116.9
118.6
119.1
119.5
121.7
122.7
123.5

Total

8.1
8.0
9.7
9.7
11.1
12.8
12.8
12.4
11.8
12.0
14.8
16.3
17.6
16.3
18.0
19.3
19.6
19.7
20.6
21.5
22.5
24.2
24.6
24.7
25.0
25.9
26.5
27.2
28.1
29.4
30.5
32.3
33.8
38.8
39.8
43.0
46.2
51.3
57.1
60.8
65.2
69.2
75.4
84.3
93.3
100.0
103.1
106.8
109.0
109.8
112.7
101.3
103.8
108.5
110.6
110.5
110.5
110.7
107.7
111.6
113.7
112.9
112.6
115.2
115.3
114.9

National Nondefense defense

41.8
45.3
50.6
55.6
59.3
63.4
67.8
74.2
83.4
92.9
100.0
103.6
107.2
109.2
110.4
111.5
102.0
104.7
108.3
111.3
110.6
110.5
110.5
109.9
111.8
111.3
111.3
111.6
112.8
113.4
114.8

46.8
48.9
53.3
60.6
64.3
69.1
72.4
78.0
86.4
94.3
100.0
101.4
105.5
108.2
108.2
117.0
99.5
100.3
108.9
108.8
110.1
110.4
111.5
101.5
110.9
122.9
119.0
116.0
125.5
122.7
115.2

State
and
local

Final
safes

9.7
14.6
11.3
8.6
12.8
9.2
13.0
9.3
13.7
9.7
14.7
10.2
15.2
10.6
15.3
11.2
15.7
11.6
19.3
12.8
22.1
14.5
23.4
16.3
16.9
23.5
23.9
17.3
24.9
18.9
25.4
19.7
25.9
20.2
26.3
20.7
27.1
21.2
22.4
28.0
29.0
23.5
29.7
24.0
30.4
24.6
30.9
25.2
31.2
25.9
26.7
31.9
32.4
27.4
32.9
28.0
33.7
28.8
34.9
30.2
35.9
32.0
37.7
33.9
39.8
36.3
42.0
39.2
44.4
41.9
46.5
44.4
49.5
47.8
54.1
52.8
59.2
58.1
63.0
62.0
67.2
66.1
72.1
71.1
78.5
77.7
85.8
86.2
93.9
93.4
100.0
100.0
103.9
104.7
107.7
109.9
110.9
114.9
114.0
118.2
117.7
123.0
101.7
102.2
105.3
106.3
109.0
111.7
112.2
116.5
112.6
117.2
113.6
117.6
114.8
118.3
115.0
119.7
121.0 / 116.2
117.3
122.3
118.2
123.9
119.1
124.9
119.8
126.5
121.0
128.1
122.4
129.6

Gross
domestic
purchases 2

14.6
11.1
12.7
12.9
13.7
14.6
15.0
15.2
15.6
19.1
21.8
23.4
23.3
23.9
25.0
25.4
25.8
26.2
27.0
27.8
28.7
29.3
30.0
30.5
30.8
31.4
31.9
32.5
33.3
34.4
35.4
37.0
39.0
41.2
43.4
45.5
48.4
53.4
58.6
62.2
66.4
71.5
78.1
86.3
94.4
100.0
103.4
106.9
109.9
112.6
116.9
101.6
104.7
108.0
111.2
111.4
111.9
113.0
114.0
115.4
116.6
117.4
118.3
119.0
120.5
121.6

Percent
change
from
preceding
period,
GNP
implicit
price
deflator 3

'-2.2
8
2.0
6.2
6.6
2.6
1.4
2.9
22.9
13.9
7.0
-.5
2.0
4.8
1.5
1.6
1.6
3.2
3.4
3.6
2.1
2.4
1.6
1.0
2.2
1.6
1.5
2.7
3.6
2.6
5.0
5.6
5.5
5.7
4.7
6.5
9.1
9.8
6.4
6.7
7.3
8.9
9.0
9.7
6.4
3.9
3.7
3.0
2.7
3.3
3.6
4.7
3.0
3.3
.7
3.6
4.7
2.1
3.5
3.5
3.1
2.4
1.7
5.5
4.7

1
Separate deflators are not calculated for gross private domestic investment, change in business inventories, and net exports of
goods and services.
2
GNP less exports of goods and services plus imports of goods and services.
3
Quarterly changes are at annual rates.
Source: Department of Commerce, Bureau of Economic Analysis.




313

TABLE B-4.—Fixed-weighted price indexes for gross national product, 1982 weights, 1959-88
[Index numbers, 1982=100, except as noted; quarterly data seasonally adjusted]

Personal

Year or quarter

Gross
connational sumption
expendiproduct

tures

1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975..
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1982: IV
1983: IV
1984: IV
1985: IV
1986:1
II .
Ill
IV..
1987: 1 '.
H
III
IV
1988: 1
II
III.

37.6
38.1
38.4
38.7
39.1
39.6
40.1
41.1
42.1
43.7
45.6
47.2
48.8
50.3
53.1
57.2
61.8
65.1
68.4
72.7
78.8
86.1
94.1
100.0
104.1
108.3
111.9
115.0
119.1
101.7
105.7
109.6
113.2
113.8
114.5
115.4
116.2
117.4
118.6
119.7
120.8
121.8
123.3
124.9

Gross private domestic
investment1
Fixed investment
Total

35.2
35.7
36.1
36.4
36.8
37.2

58.0
58.1
58.0
58.0
58.0
58.2

37.7
38.5
39.5
41.0
42.8
44.7
46.6
48.3
51.0
55.8
60.1
63.5
67.5
72.2
78.6
86.8
94.6
100.0
104.2
108.4
112.2
115.3
120.4
101.8
105.8
109.7
113.8
114.3
114.5
115.7
116.6
118.2
119.9
12U
122.5
123.2
124.9
126.5

58.5
59.3
60.2
61.4
63.2
61.5
60.6
59.8
61.8
64.4
69.0
71.4
72.6
74.5
80.3
86.9
94.5
100.0
100.4
101.5
103.3
105.8
108.8
100.2
100.5
102.3
104.2
104.7
105.5
106.1
106.8
107.6
108,4
109.3
109.9
110.8
111.3
111.6

Nonresi- Residendential
tial

65.9
66.1
66.0
66.1
66.2
66.4
66.7
67.4
68.4
69.5
71.0
68.4
66.6
65.0
66.6
68.5
73.1
75.2
74.9
75.0
80.1
86.1
93.9
100.0
99.9
100.2
101.9
104.3
106.8
100.5
99.6
100.9
102.8
103.3
104.1
104.6
105.3
106.1
106.5
107.0
107.5
108.3
109.0
109.4

30.2
30.3
30.2
29.9
29.5
29.6
30.0
30.8
31.6
33.1
36.0
37.4
39.5
41.6
45.1
50.1
54.6
58,4
64.8
72.5
81.2
89.4
96.6
100.0
102.2
106.0
108.3
110.9
115.9
99.1
103.3
107.2
109.0
109.7
110.3
111.2
112.2
113.2
114.9
117.4
118.3
119.2
119.3
119.4

Exports and
imports of goods
and services1

Exports Imports

32.8
33.5
34.0
34.1
34.4
34.8
35.9
37.1
38.2
39.3
40.9
43.3
45.3
46.5
50.8
59.8
65.4
67.4
70.3
74.5
82.9
90.5
97.7
100.0
101.6
104.3
103.7
103.9
106.0
100.0
103.2
104.0
103.4
104.0
103.9
103.7
103.9
104.7
105.5
106.4
107.0
108.7
110.5
113.0

27.0
27.3
27.0
26.7
27.1
27.7
28.1
29.1
29.5
30.1
31.2
33.4
35.6
37.8
42.4
54.5
59.7
61.3
66.1
71.3
80.9
96.3
101.5
100.0
97.7
97.5
95.7
93.6
100.8
99.3
97.6
96.8
96.8
95.8
92.4
92.8
94.7
97.8
100.3
101.9
103.0
103.9
105.3
105.4

Government purchases of
goods ana services

Federal
Total

25.8
26.4
27.0
27.8
28.5
29.3
30.0
31.3
32.7
34.5
36.6
39.6
42.3
45.2
48.8
53.5
58.6
62.2
66.0
70.9
77.3
86.3
94.1
100.0
104.5
109.2
113.2
115.6
119.6
102.0
106.0
110.7
114.4
114.9
115,2
115.5
116.6
118.0
119.1
120.1
121.2
122.9
124.3
125.7

Total
26.9
27.3
27.8
28.4
29.3
30.1
30.8
32.0
32.8
34.5
36.4
39.5
42.4
46.0
50.1
54.8
59.4
62.4
65.8
70.6
76.8
86.4
94.9
100.0
104.1
108.0
110.4
110.8
113.5
101.7
105.4
109.0
111.0
110.9
110.8
110.5
110.8
112.5
113.3
113.7
114.4
116.3
117.2
118.5

National Nondefense defense

44.3
47.4
51.4
56.5
59.7
63.5
68.6
75.1
84.7
93.8
100.0
103.7
107.6
110.5
111.3
114.0
101.8
104.7
109.0
111.4
111.3
111.1
111.1
111.7
113.2
113.9
114.2
114.8
116.6
117.4
118.0

50.5
56.9
63.3
66.6
69.0
71.5
75.5
81.0
90.6
97.4
100.0
105.1
108.9
110.0
109.4
112.1
101.4
107.0
109.1
110.1
110.0
109.9
108.9
108.7
110.6
111.7
112.5
113.6
115.7
116.9
119.7

State
and
local

249
25.7
26.4
27.3
27.9
28.5
29.3
30.6
32.5
34.4
36.7
39.6
42.2
44.6
47.8
52.6
57.9
62.0
66.2
71.2
77.7
86.2
93.5
100.0
104.8
110.1
115.3
119.1
124.1
102.2
106.4
111.9
117.0
117.8
118.4
119.3
120.8
122.0
123.3
124.9
126.1
127.8
129.5
131.0

Percent
change
from
preceding
period,
GNP
fixedweighted
price
index 2
1.4
.7
.8
1.0
1.2
1.4
2.5
2.6
3.7
4.4
3.6
3.5
2.9
5.5
7.8
8.0
5.3
5.1
6.2
8.5
9.3
9.3
6.2
4.1
4.0
3.4
2.8
3.6
4.0
4.0
3.2
3.3
2.2
2,4
3.0
2.8
4.2
4.2
3.7
3.8
3.5
5.0
5.3

1
Separate price indexes are not calculated for gross private domestic investment, change in business inventories, and net exports of
goods and services.
2
Quarterly changes are at annual rates.

Source: Department of Commerce, Bureau of Economic Analysis.




314

TABLE B-5.—Changes in gross national product, personal consumption expenditures, and related price
measures, 1933-88
[Percent change from preceding period; quarterly data at seasonally adjusted annual rates]
Gross national product
Year or quarter

1933
1939
1940
1941
1942
1943...,
1944
1945.
1946
1947.
1948
1949
1950
1951
1952...
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979 ..
1980
1981
1982
1983
1984
1985....
1986
1987
1982: IV
1983 IV
1984- IV
1985- IV
1986:1
||
Ill
IV
1987:1
||
HI
IV
1988:1
II
Ill

Current
dollars

-4.2
7.0
10.0
25.0
26.6
21.2
9.7
.9
-.5
10.8
11.2
10.7
15.7
5.5
5.7
9^0
5.5
5.3
1.3
8.5
3.9
3.6
7.6
5.6
'7,1
8.5
9.5
5.8
9.3
8.0
5.4
8.6
10.0
12.1
8.3
8.5
11.5
11.7
13.0
11.5
8.9
11.7
3.7
7.6
10.8
6.4
5.6
6.8
4.2
12.4
4.7
6.2
7.2
2.6
5.9
3.4
8.4
8.7
7.7
8.6
5.4
8.7
7.3

Constant
(1982)
dollars
-2.1
7.9
7.8
17.7
18.8
18.1
8.2
-1.9
-19.0
-2.8
3.9
.0
8.5
10.3
3.9
4.0
-1.3
5.6
2.1
1.7
-.8
5.8
2.2
2.6
5.3
4.1
5.3
5.8
5.8
2.9
4.1
2.4
~2A
5.0
5.2

-lis

4.9
4.7
5.3
2.5

119
-2.5
3.6
6.8
3.4
2.8
3.4
.6
7.3
1.7
3.0
6.4
-.8
1.0
1.4
4.6
5.0
4.5
6.1
3.4
3.0
2.5

Implicit
price
deflator

Personal consumption expenditures

Chain
price
index

-2.2
-.8
2.0
6,2
6.6
2.6
1.4
2.9
22.9
13.9
7.0
-.5
2.0
4.8
1.5
1.6
1.6
3.2
3.4
3.6
2.1
2.4
1.6
1.0
2.2
1.6
1.5
2.7
3.6
2.6
5.0
5.6
5.5
5.7
4.7
6.5
9.1
9.8
6.4
6.7
7.3
8.9
9.0
9.7
6.4
3.9
3.7
3.0
2.7
3.3
3.6
4.7
3.0
3.3
.7
3.6
4.7
2.1
3.5
3.5
3.1
2.4
1.7
5.5
4.7

1.5
1.0
1.2
1.3
1.5
1.8
3.0
2.8
4.3
5.0
5.2
4.8
4.2
5.9
8.9
9.2
5.9
6.1
7.2
8.7
9.0
9.4
6.3
4.1
3.9
3.3
2.5
3.4
4.1
3.9
3.1
3.2
1.7
2.0
3.1
2.4
4.0
3.7
3.6
3.4
3.0
4.8
4.7

Source: Department of Commerce, Bureau of Economic Analysis.




315

Fixedweighted price
index
{1982
weights)

1.4
.7
.8
1.0
1.2
1.4
2.5
2.6
3.7
4.4
3.6
3.5
2.9
5.5
7.8
8.0
5.3
5.1
6.2
8.5
9.3
9.3
6.2
4.1
4.0
3.4
2.8
3.6
4.0
4.0
3.2
3.3
2.2
2.4
3.0
2.8
4.2
4.2
3.7
3.8
3.5
5.0
5.3

Current
dollars

-5.7
4.6
6.0
13.8
9.7
12.2
8.8
10.5
20.4
12.5
8.0
1.9
7.7
8.3
5.3
6.2
3.1
7.5
4.9
5.4
3.3
7.4
4.6
3.1
6.1
5.5
7.2
7.7
8.3
5.5
9.7
8.2
7.0
8.1
9.5
10.5
9.5
10.5
11.5
11.3
11.6
11.6
10.6
10.5
7.1
9.0
8.8
8.2
6.8
7.3
10.3
9.7
7.2
6.0
5.8
4.9
10.6
4.8
6.5
10.0
9.1
2.4
6.9
8.8
8.6

Constant
(1982)
dollars
-1.6
5.1
4.6
5.7
~23
3.2
6.4
10.5
1.8
2.3
2.0
5.4
2.1
3.0
4.0
2.5
6.2
3.0
2.2
1.4
5.0
2.6
2.0
4.3
3.7
5.6
5.6
5.1
3.0
5.1
3.6
2.4
3.1
5.4
4.2
-.9
2.3
5.4
4.4
4.1
2.2
-.2
1.2
1.3
4.6
4.8
4.7
4.3
2.7
5.3
5.5
4.3
1.9
4.8
4.3
6.3
1.2
.6
4.3
4.6
-2.1
4.5
3.0
3.9

Implicit
price
deflator

Chain
price
index

Fixedweighted price
index
(1982
weights)

-4.2
13
7.7
10.4
9.6
5.4
3.9
89
10.6
5.6
-.1
2.2
6.1
2.2
2.1
.6
1.3
1.9
3.2
1.8
2.2
1.9
1.2
1.8
1.5
1.7
1.7
3.1
2.5
4.5
4.3
4.6
4.7
4.0
6.2
10.5
8.0
5.7
6.5
7.3
9.2
10.7
9.2
5.7
4.1
3.8
3.2
2.4
4.5
4.4
4.3
3.0
4.0
1.1
.7
3.9
3.5
5.6
5.6
4.4
4.4
2.3
5.7
4.3

: :; : "

•" •" "

1.7
1.1
1.1
1.4
1.2
1.5
2.7
2.5
4.0
4.4
4.7
4.3
3.6
6.0
10.3
8.0
5.7
6.4
7.2
9.2
10.9
9.2
5.7
4.2
3.9
3.5
2.7
4.5
4.8
4.1
3.1
4.2
1.4
.8
4.3
3.5
5.5
5.7
4.3
4.4
2.5
5.6
4.6

1.5
.9
.9
1.1
1.2
1.2
2.2
2.5
3.8
4.3
4.6
4.2
3.5
5.7
9.4
7.7
5.6
6.3
7.0
8.8
10.5
9.0
5.6
4.2
4.0
3.5
2.7
4.5
4.8
. 4.1
3.2
4.3
1.5
4^2
3.5
5.6
5.7
4.2
4.6
2.4
5.7
4.9

TABLE B-6.—Cross national product by major type of product, 1929-88
[Billions of dollars; quarterly data at seasonally adjusted annual rates]

Year or
quarter

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949

Gross
national
product

103.9
56.0
91.3
100.4
125.5
159.0
192.7
211.4
213.4
212.4
235.2
261.6
260.4

Final
sales

102.2
57.6
90.9
98.3
121.0
157.2
193.4
212,3
214.4
206.0
235.7
256.9
263.4
281.4
323.2
348.6
371.1
374.1
400.2
423.6
449.6
458.3
490.0

1950
288.3
333.4
1951
1952
351.6
1953
371.6
1954
372.5
1955
405.9
1956
428.2
1957
451.0
456.8
1958
1959
"! 495.8
1960
515.3
512.3
1961
533.8 531.4
1962
574.6 568.5
1963
606.9 601.1
1964
649.8 644.4
705.1 695.2
1965
1966
772.0 757.8
1967
816.4 806,1
1968
892.7 884.8
1969
963.9 954.1
1970
1,015.5 1,012.3
1971
1,102.7 1,094.9
1972
" 1,212.8 1,202.3
1973
1,359.3 1,339.7
1974
1,472.8 1,457.4
1975
'.". 1,598.4 1,604.1
1976. ..
1,782.8 1,766.8
1977
1,990.5 1,969.2
1978
2,249.7 2,221.0
1979
2,508.2 2,495.2
1980
2,732.0 2,740.3
1981
3,052.6 3,028.6
1982
3,166.0 3,190.5
1983
3,405.7 3,412.8
1984
3,772.2 3,704.5
1985
4,014.9 4,003.6
1986
4,240.3 4,224.7
1987
4,526.7 4,487.5
1982: IV
3,212.5 3,272.4
1983: IV
3,545.8 3,514.8
1984: IV
3,851.8 3,806.8
1985: IV
4,107.9 4,100.7
1986:1
4,180.4 4,136.5
|
|
4,207.6 4,188.1
lit
4,268.4 4,267.7
IV
4,304.6 4,306.6
1987:1
4,391.8 4,354.1
11
4,484.2 4,451.5
Ill
4,568.0 4,553.5
IV
4,662.8 4,590.7
1988:1
4,724.5 4,659.2
II
4,823.8 4,780.1
Ill
4,909.0 4,859.3

Inventory
change

Total

56.1
27.0
49.0
2.2
56.0
72.5
4.5
93.7
1.8
6
120.4
132.3
-1.0
10
128.9
6.4
125.3
139.8
154.4
147J
-3,1
162.4
6.8
189.9
10.2
195.5
3.1
.4
204.6
-1.6
198.0
5,7
216.3
4.6
225.4
1.4
234.7
230.5
-1.5
5.8
250.8
257.2
3.1
2.4
260.4
6.1
281.5
5.8
293.2
5.4
313.5
342.9
9.9
14.2
380.1
10.3
395.1
427.4
7.9
9.8
456.6
3.1
467.8
493.0
7.8
10.5
537.4
19.6
616.4
15.4
663.1
714.7
-5.6
16.0
798.9
882.0
21.3
28.6
991.4
13.0 1,099.1
-8.3 1,174.9
24.0
1,322.9
-24.5 1,319.1
-7.1 1,396.1
67.7 1,581.4
11.3 1,641.2
15.5 1,697.9
39.2 1,792.5
-59.9 1,309.8
31.0 1,473.7
45.0 1,599.9
7.2 1,657.4
44.0 1,690.5
19.5 1,688.3
.7 1,707.8
-2.0 1,705.0
37.7 1,733.4
32.7
1,774.5
14.5 1,812.9
72.0 1,849.3
65.3 1,879.5
43.7
1,928.0
49.7 1,960.1
1.7
16
.4

l;?

Goods
Durable goods Nondurable goods
Services Structures
InvenFinal Inven- Final Inven- Final
tory
tory
tory
sales change sales change sales change

Total

54.4
28.6
48.6
53.8
68.0
91.9
121.0
133.3
129.9
118.9
140.3
149.7
150.8
155.6
179.6
192.4
204.2
199.6
210.6
220.7
233.3
232.0
245.1
254.1
258.0
275.4
287.4
308.1
333.0
365.9
384.9
419.5
446.8
464.7
485.2
526.9
596.8
647.7
720.3
782.9
860.7
962.8
1,086.1
1,183.2
1,298.9
1,343.7
1,403.2
1,513.7
1,629.9
1,682.3
1,753.3
1,369.7
1,442.7
1,554.9
1,650.2
1,646.5
1,668.9
1,707.1
1,706.9
1,695.7
1,741.8
1,798.4
1,777.3
1,814.2
1,884.3
1,910.4

1.7
16
.4

16.1
5.4
12.4

1.4
-.5
.3

2.2
4.5
1.8
6
-1.0
-1.0
6.4

15.4
23.8
34.5
54.2
58.5
50.1
31.8
44.4
48.0
50.0
56.2
66.4
72.6
78.0
74.1
81.7
86.2
91.7
84.8
91.1
93.8
93.1
103.4
110.0
119.6
132.4
147.9
154.5
169.1
180.1
182.1
189.4
209.7
241.9
257.2
288.2
323.6
369.4
416.9
473.1
499.4
541.1
542.9
575.3
641.3
700.1
721.1
749.7
551.8
611.9
667.6
697.9
691.1
709.1
748.2
735.8
708.4
742.8
789.3
758.2
792.7
831.6
836.4

1.2
3.1
1.0
.0
-.6
-1.3
5.3
1.4
1.0
-1.8

77
.
-3.1
6.8
10.2
3.1
.4
-1.6
5.7
4,6
1.4
-1.5
5.8
3.1
2.4
6.1
5.8
5.4
9.9
14.2
10.3
7.9
9.8
3.1
7.8
10.5
19.6
15.4
-5.6
16.0
21.3
28.6
13.0
83
24.0
-24.5
-7.1
67.7
11.3
15.5
39.2
-59.9
31.0
45.0
7.2
44.0
19.5
-2.Q

37.7
32.7
14.5
72.0
65.3
43.7
49.7

Source: Department of Commerce, Bureau of Economic Analysis.




316

-2i8
3.1

38.3
23.2
36.2
38.4
44.2
57.4
66.8
74.8
79.8
87.1
95.9
101.7
100.9
99.4
113.2
119.8
126.2
125.5
128.9
134.5
141.6
147.2
154.0

1.6
-.1
3.4
2.7
4.0
6.7
10.2
5.5
4.7
6.4

160.3
164.8
172.0
177.4
188.5
200.6
218.1
230.4
250.4
266.7

-.1
2.8
7.2
15.0
11.2
-7.0
10.3
9.7
20.1
10.3

282.6
295.8
317.2
354.9
390.4
432.2
459.3
491.3
545.9
613.0
683.8
757.8
800.8
827.9
872.4
929.8
961.3
1,003.6
817.9
830.9
887.3
952.3
955.4
959.7
958.9
971.1
987.3
999.1
1,009.1
1,019.1
1,021.5
1,052.7
1,074.0

3.6
6.1
1.2
1.5
-2.5
3.4
2.1

-2.9
.6.8
-16.8
-1.0
40.2
6.5
4.3
26.6
-42.7
16.7
33.0
8.6
25.1
4.9
-8.1
-4.9
28.8
24.3
2.9
50.5
26.6
17.8
45.1

0.3
-1.1
1.0
1.4

~!e
~'.2
1.1
-1.9
3.7
-1.3
3.2
4.2
1.9
-1.1
.9
2.3
2.5
.9
1.3
2.6
1.4
2.5
2.7
3.1
1.4
3.2
4.0
4.8
3.2
3.4
3.2
4.9
3.3
4.6
4.3
1.3
5.7
11.6
8.6
2.7
-5.4
17.2
-7.7
-6.1
27.5
4.9
11.3
12.6
-17.2
14.3
12.0
-1.4
18.9
14.6
8.8
2.9
8.9
8.4
11.6
21.6
38.6
25.9
4.6

35.9
25.9
34.5

11.9
3.1
7.8

35.8
40.9
50.9
63.2
72.4
77.3
70.5
72.7
78.0
83.0

8.6
12.1
14.4
9.2
6.6
7.2
16.6
22.8
29.2
29.6

89.0
104.4
115.2
123.4
128.5
138.5
148.9
161.6
170.9
183.5
197.4
210.9
226.4
242.2
261.1
280.5
307.2
334.9
368.0
402.3
441.1
484.9
533.2
586.6
650.6
725.2
803.5
895.9
1,003.0
1,121.9
1,265.0
1,415.4
1,547.5
1,682.5
1,813.9
1,968.3
2,118.4
2,295.7
1,598.9
1,730.1
1,866.5
2,035.7
2,068.0
2,097.5
2,136.2
2,171.7
2,228.4
2,276.2
2,314.4
2,363.9
2,405.2
2,451.5
2,501.6

36.9
39.1
40.9
43.6
46.0
51.1
53.9
54.8
55.5
61.5
60.7
62.5
66.7
71.5
75.2
81.7
84.6
86.4
97.2
105.1
106.5
124.8
142.1
156.3
159.1
158.5
180.4
212.6
255.3
287.1

Auto
output

292.0
314.4
299.4
327.1
377.0
405.4
424.0
438.4
303.9
342.0
385.4
414.8
421.9
421.7
424.4
428.0
430.0
433.4
440.6
449.5
439.9
444.3
447.3

7.2
8.8
11.9
15.4
13.3
12.0
16.1
14.7
21.2
16.9
19.4
14.5
19.4

21.3
17.8
22.4
25.1
25.9
31.1
30.2
27.8
35.0
34.7
28.5
38.9
41.4
46.0
38.8
40.3
55.2
64.3
68.3
66.9
60.1
69.4
66.5
88.6
105.1
116.5
120.6
116.3
64.5
102.1
111.5
115.5
115.4
119.4
124.2
123.5
116.2
113.1
115.3
120.6
113.1
130.3
132.0

TABLE B-7.—Gross national product by major type of product in 1982 dollars, 1929-88
[Billions of 1982 dollars; quarterly data at seasonally adjusted annual rates]
Goods
Year or
quarter

Gross
national
product

Final
sales

Inventory
change

Durable goods

Total
Total

Final
sates

Inventory
change

698.7
10.8
509.2 -10.7
712.7
3.9

308.1
210.0
331.7

297.3 10.8
220.7 -10.7
327.8
3.9

758.5
881.6
1,068.3
1,275.5
1,385.7
1,363.3
1,069.0
1,067.7
1,096.4
1,118.7

14.4
27.8
12.0
.7
-5.2
84
27.9
10
12.3
97

370.3
431.9
504.1
608.6
664.6
639.1
521.0
517.1
531.7
517.9

1,203.7
1,328.2
1,380.0
1,435.3
1,416.2
1,494.9
1,525.6
1,551.1
1,539.2
1,629.1

1,179.5
1,297.4
1,370.0
1,432.5
1,421.0
1,478.6
1,512.7
1,548.1
1,542.6
1,612.6

24.2
30.8
10.0
2.8
-4.8
16.3
12.9
3.0
34
16.5

561.4
623.0
641.3
676.6
643.5
683.9
697.1
699.3
674.2
716.6

1,665.3
1,708.7
1,799.4
1,873.3
1,973.3
2,087.6
2,208.3
2,271.4
2,365.6
2,423.3

1,657.5
1,701.4
1,783.3
1,856.7
1,957.6
2,062.4
2,171.5
2,242.6
2,344.6
2,398.1

7.7
7.3
16.2
16.6
15.7
25.2
36.9
28.8
21.0
25.1

1929
1933
1939

709.6
498.5
716.6

1940
1941
1942
1943
1944
1945
1946
1947
1948
1949

772.9
909.4
1,080.3
1,276.2
1,380.6
1,354.8
1,096.9
1,066.7
1,108.7
1,109.0

1950
1951
1952 . .
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

Final
sales

Inventory
change

Nondurable goods
Final
sales

Inventory
change

Services

Structures

Auto
output

85.8
34.9
74.8

7.5
-4.5
1.6

211.5
185.7
253.1

3.3
-6.2
2.3

290.0
252.1
306.4

111.4
36.5
78.5

355.9
404.2
492.1
607.9
669.8
647.5
493.1
518.1
519.4
527.6

14.4
91.9
27.8 122.9
12.0 163.3
.7 254.4
= 5.2 292.4
84 263.1
27.9 129.6
1 0 164.7
12.3 166.5
97 166.8

7.2
17.4
7.5
1.4
-3.8
-7.8
23.1
2.8
3.4
-6.1

264.0
281.2
328.8
353.5
377.4
384.4
363.5
353.4
353.0
360.8

7.2
10.3
4.5

-1.4
-.6
4.8
-3.8
8.8
-3.6

318.1
367.1
460.4
598.9
665.0
662.3
472.0
431.0
438.1
450.1

84.5
110.3
115.8
68.7
50.9
53.5
104.0
118.6
138.9
141.0

24.1
27.6
35.5

537.2
592.2
631.3
673.8
648.2
667.6
684.1
696.3
677.6
700.1

24.2
30.8
10.0
2.8
-4.8
16.3
12.9
3.0
-3.4
16.5

180.0
208.8
229.8
245.4
230.6
245.2
248.3
251.3
229.1
236.8

11.4
19.1
3.6
4.7
-7.7
9.5
6.3
1.9
-7.1
8.2

357.1
383.4
401.5
428.4
417.7
422.3
435.8
445.0
448.6
463.4

12.8
11.7
6.4
-2.0
2.9
6.8
6.7
1.1
3.7
8.3

470.4
537.7
567.3
577.6
579.5
601.0
619.7
645.4
654.7
681.5

171.9
167.5
171.4
181.2
193.2
210.0
208.9
206.5
210.3
231.0

44.9
38.3
34.9
44.8
43.3
58.2
45.8
48.3
37.4
45.7

726.8 719.1
730.2 723.0
773.5 757.3
797.5 780.8
845.2 829.5
904.0 878.8
974.7 937.8
993.1 964.3
1,024.8 1,003.7
1,048.5 1,023.3

7.7
7.3
16.2
16.6
15.7
25.2
36.9
28.8
21.0
25.1

242.2
239.2
260.2
273.4
295.4
322.2
354.2
363:6
378.5
389.7

4.0
-.1
8.4
7.1
11.2
17.4
26.3
14.4
11.8
15.2

476.9
483.7
497.1
507.4
534.1
556.5
583.6
600.7
625.3
633.6

3.7
7.3
7.7
9.5
4.5
7.8

709.9
743.0
777.0
811.5
852.8
891.6
io:e 942.7
14.4
990.6
9.3 1,032.0
9.9 1,066.9

228.5
235.4
248.9
264.4
275.3
292.0
291.0
287.6
308.8
307.9

49.6
41.1
49.8
54.6
55.3
66.9
64.8
58.3
70.5
67.6

1970
1971 .
1972
1973
1974
1975
1976
1977
1978
1979

2,416.2
2,484.8
" 2,608.5
2,744.1
2,729.3
2,695.0
2,826.7
2,958.6
3,115.2
3,192.4

2,407.9
8.2
2,465.2
19.6
2,586.8 21.8
2,704.1 40.0
2,696.0 33.3
2,707.8 -12.8
2,804.6 22.1
2,929.5 29.1
3,078.4 36.8
3,177.4
15.0

1,030.0
1,037.6
1,093.8
1,175.0
1,159.2
1,125.0
1,194.7
1,256.2
1,329.1
1,354.6

1,021.7
8.2
1,017.9
19.6
1,072.1 21.8
1,135.0 40.0
1,125.9
33.3
1,137.8 -12.8
1,172.5 22.1
1,227.1 29.1
1,292.4
36.8
1,339.6 15.0

381.7
375.5
~M
15.4
409.4
30.8
474.9
476.0 20.0
471.1 -11.4
490.9 15.9
14.2
534.0
572.5 27.5
13.3
604.6

640.1
642.4
662.7
660.1
649.9
666.7
681.7
693.1
719.9
735.1

8.8
12.5
6.4
9.2
13.3
-1.4
6.3
14.9
9.3
1.7

1,092.4
1,126.1
1,169.4
1,218.7
1,256.4
1,286.4
1,324.4
1,368.7
1,426.9
1,478.6

293.8
321.2
345.4
350.4
313.7
283.6
307.6
333.7
359U
359.2

53.1
69.8
73.9
82.0
65.4
61.8
80.1
88.7
87.3
80.2

1980
1981
1982
1983
1984. ...
1985
1986
1987

3,187.1
3,248.8
3,166.0
3,279.1
3,501.4
3,618.7
3,721.7
3,847.0

3,194.0 -6.9
3,225.0
23.9
3,190.5 -24.5
3,285.5 -6.4
3,439.1
62.3
3,609.6
9.1
3,706.3
15.4
3,812.6 34.4

1,344.2
1,386.0
1,319.1
1,367.0
1,509.2
1,553.6
1,599.0
1,663.3

1,351.1 -6.9
1,362.2 23.9
1,343.7 -24.5
1,373.4
64
1,446.9 62.3
1,544.5
9.1
1,583.5 15.4
1,628.9 34.4

584.0 -3.2
6.9
578.5
542.9 -16.8
566.3 -1.2
623.5 38.2
5.6
686.1
3.8
710.7
23.9
750.7

767.1
783.7
800.8
807.0
823.3
858.4
872.8
878.2

-3.7
16.9
-7.7
-5.2
24.2
3.5
11.6
10.5

1,511.1 331.8
1,533.4 329.4
1,547.5 299.4
1,585.5 •326.6
1,625.2 367.1
1,684.3 380.8
1,738.1 384.7
1,801.1 382.6

67.1
73.3
66.5
85.9
98.5
106.5
106.2
100.6

1982: IV
1983: IV
1984: IV
1985: IV

3,159.3
3,365.1
3,535.2
3,662.4

3,218.6 -59.3
3,338.1 27.0
3,493.5 41.7
3,654.7
7.7

1,297.9
1,423.8
1,520.2
1,564.7

1,357.1 -59.3
1,396.8
27.0
1,478.5 41.7
7.7
1,557.0

543.8 -42.4
16.1
598.0
647.8 31.1
687.7
7.3

813.4
798.8
830.7
869.4

-16.9
10.9
10.6
.4

1,555.5
1,600.7
1,644.7
1,712.5

305.9
340.6
370.3
385.2

63.3
96.4
104.2
104.8

1986- 1
II
Ill
IV

3,719.3
3,711.6
3,721.3
3,734.7

45.7
3,673.6
23.6
3,688.0
3,718.3
3.0
3,745.2 -10.5

1,604.7
1,598.0
1,595.3
1,597.8

1,559.1 45.7
1,574.4
23.6
1,592.3
3.0
1,608.3 -10.5

683.9
700.7
733.5
724.8

23.2
4.1
-7.5
-4.5

875.1
873.7
858.8
883.6

22.5
19.5
10.5
-6.0

1,724.8
1,730.7
1,743.6
1,753.2

389.7
383.0
382.4
383.7

104.2
106.0
107.3
107.3

1987:1
II
Ill
IV

3,776.7
3,823.0
3,865.3
3,923.0

3,746.9
3,795.2
3,852.2
3,855.9

29.8
27.8
13.0
67.1

1,616.2
1,645.6
1,677.5
1,713.9

1,586.4
1,617.8
1,664.5
1,646.8

29.8
27.8
13.0
67.1

702.3
742.3
790.8
767.2

25.7
21.5
2.9
45.5

884.1
875.5
873.7
879.6

4.1
6.3
10.1
21.6

1,778.2
1,797.2
1,806.6
1,822.3

382.4
380.2
381.1
386.7

102.0
98.4
99.2
102.9

1988:1
II
Ill

3,956.1 3,890.1
3,985.2 3,949.9
4,009.4 3,969.9

66.0
35.3
39.5

1,748.1 1,682.2
1,762.4 1,727.1
1,768.9 1,729.4

66.0
35.3
39.5

809.0
845.8
844.6

23.5
15.9
40.4

873.2
881.3
884.9

42.4 1,833.4
19.4 1,846.1
-.9 1,862.8

374.6
376.7
377.7

96.0
111.2
111.5

Source: Department of Commerce, Bureau of Economic Analysis.




317

TABLE B-8.—Gross national product by sector, 1929-88
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Gross domestic product
Year or quarter

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958...
1959
1960
1961
1962
1963
1964..
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976'
1977
1978
1979
1980
1981

;

1983
1984
1985
1986
1987
1982: IV
1983: IV. . .
1984: IV
1985: IV
1986- 1
II
Ill
IV
1987: 1
II
Ill
IV
1988: 1
II...
Ill

Gross
national
product

Business '
Total

103.2
103.9
55.7
56.0
90.9
91.3
100.4
100.1
125.0
125.5
158.5
159.0
192.7
192.3
210.9
211.4
213.4 . 213.0
211.6
212.4
234.1
235.2
260.1
261.6
259.0
260.4
286.7
288.3
331.4
333.4
349.4
351.6
369.5
371.6
370.3
372.5
405.9
403.3
425.2
428.2
447.7
451.0
453.9
456.8
492.7
495.8
511.8
515.3
533.8
530.0
570.1
574.6
606.9
602.0
644.4
649.8
705.1
699.3
772.0
766.3
816.4
810.4
892.7
885.9
957.1
963.9
1,008.2
1,015.5
1,102.7
1,093.4
1,201.6
1,212.8
1,359.3
1,343.1
1,472.8
1,453.3
1,598.4
1,580.9
1,782.8
1,761.7
1,965.1
1,990.5
2,249.7
2,219.1
2,464.4
2,508.2
2,684.4
2,732.0
3,052.6
3,000.5
3,114.8
3,166.0
3,405.7
3,355.9
3,724.8
3,772.2
3,974.1
4,014.9
4,205.4
4,240.3
4,526.7
4,497.2
3,163.8
3,212.5
3,494.6
3,545.8
3,805.9
3,851.8
4,107.9
4,065.9
4,180.4
4,139.6
4,207.6
4,175.2
4,268.4
4,232.5
4,274.1
4,304.6
4,391.8
4,359.9
4,484.2
4,455.9
4,568.0
4,541.2
4,631.8
4,662.8
4,702.1
4,724.5
4,823.8
4,802.5
4,882.2
4,909.0

Total

1

96.0
49.3
81.0
89.8
113.0
140.4
163.4
174.9
173.5
184.8
211.3
236.4
232.9
259.0
296.7
310.7
329.3
329.1
359.4
378.1
397.3
399.5
435.5
449.9
463.9
499.1
526.0
562.1
610.7
666.7
699.7
762.0
820.1
856.3
927.4
1,020.0
1,145.0
1,237.5
1,341.2
1,500.7
1.682.1
1,908.4
2,125.3
2,306.8
2,582.8
2,658.2
2,866.6
3,201.5
3,412.8
3,608.9
3,855.5
2,693.6
2,994.8
3,270.6
3,490.7
3,556.5
3,583.7
3,632.3
3,662.8
3,735.6
3,819.9
3,893.8
3,972.9
4,028.1
4,117.5
4,185.2

Nonfarm

1

84.8
43.6
73.0
82.0
103.4
128.0
149.8
156.9
153.5
165.2
189.3
214.4
213.3
238.3
271.1
286.7
306.3
306.7
338.8
361.4
380.1
378.9
417.9
432.5
445.0
478.6
506.2
544.3
590.0
641.7
677.8
740.4
798.8
831.2
897.5
988.8
1,098.3
1,190.0
1,288.4
1,448.7
1,631.7
1,850.0
2,054.5
2,236.4
2,498.9
2,581.3
2,802.1
3,118.5
3,342.2
3,547.1
3,787.8
2,607.7
2,932.7
3,198.7
3,422.4
3,495.2
3,518.0
3,570.3
3,604.9
3,670.0
3,743.2
3,832.2
3,905.8
3,965.4
4,048.0
4,123.7

1
2 Includes

compensation of employees in government enterprises.
Compensation of government employees.
Source: Department of Commerce, Bureau of Economic Analysis.




318

Farm
9.7
4.6
6.3
6.4
8.9
13.0
15.3
15.3
16.0
18.8
20.2
23.3
18.8
20.0
22.9
22.2
20.3
19.7
18.8
18.6
18.4
20.7
19.0
20.2
20.2
20.4
20.5
19.3
21.9
22.8
22.2
22.7
25.2
26.3
28.1
32.8
51.0
49.2
50.3
48.5
50.4
60.3
71.8
65.5
79.8
77.0
59.3
77.6
75.4
75.4
75.9
79.0
59.6
74.0
76.2
73.4
75.3
75.7
77.3
74.1
79.2
76.8
73.4
77.7
74.6
75.6

Households
Statisand
tical
instidiscrep- tutions
ancy
1.5
1.2
1.7
1.4

-~L7
2.7
4.0
L8
-1.3
.8
.8
2.7
1.8
2.6
2.7
1.8
-1.9
-1.2
.-.1
-1.5
-2.8
-1.2
.0
-.6
-1.4
-1.2
2.1
= .4
-1.1
-3.9
-1.1
1.8
-1.6
-4.3
-1.7
2.5
3.6
.0
-1.9
-1.0
4.9
4.1
l!2
5.4
-4.8
-13.6
-8.1
6.8
2.5
-2.1
-7.9
-12.0
-9.5
-13.6
-19.4
-8.5
-2.5
-15.1
-6.4
-15.0
-5.1
-14.0

2.9
1.7
2.3
2.4
2.5
2.9
3.2
3.7
4.1
4.5
5.1
5.6
5.9
6.5
6.9
7.2
7.8
8.1
9.1
9.9
10.6
11.5
12.4
13.9
14.5
15.6
16.7
17.9
19.3
21.3
23.4
26.1
29.5
32.4
35.6
39.0
43.0
47.2
52.0
57.1
62.4
70.2
78.6
89.3
101.0
112.7
122.9
132.7
142.3
153.1
168.9
116.9
126.6
136.1
146.6
149.0
151.5
154.4
157.5
161.5
166.3
171.7
176.4
180.9
185.6
191.2

Government 2
Total

4.4
4.7
7.6
7.8
9.5
15.2
25.6
32.3
35.3
22.4
17.6
18.1
20.1
21.2
27.7
31.5
32.4
33.0
34.8
37.2
39.8
42.9
44.8
48.1
51.6
55.4
59.3
64.4
69.3
78.4
87.4
97.8
107.5
119.5
130.3
142.6
155.0
168.7
187.7
203.8
220.5
240.5
260.4
288.3
316.7
343.9
366.4
390.6
419.0
443.4
472.7
353.4
373.1
399.1
428.6
434.1
440.0
445.7
453.8
462.8
469.8
475.7
482.5
493.1
499.4
505.8

Federal
0.9
1.2
3.5
3.5
5.1
10.7
21.0
27.3
30.0
16.2
10.3
9.6
10.7
11.1
16.6
19.3
19.1
18.3
19.0
19.6
20.2
21.3
21.7
22.6
23.6
25.2
26.5
28.5
30.0
34.3
37.8
41.9
44.9
48.4
51.1
54.9
57.1
61.1
66.5
70.9
75.5
81.7
86.9
96.1
107.4
117.0
124.7
132.1
140.2
143.5
151.0
120.7
126.0
134.0
142.4
142.6
143.2
143.6
144.5
149.2
150.8
151.3
152.7
156.7
157.4
158.1

State
and
local

3.5
3.5
4.2
4.3
4.4
4.5
4.7
4.9
5.4
6.2
7.3
8.5
9.4
10.1
11.2
12.3
13.3
14.7
15.8
17.6
19.6
21.6
23.1
25.5
27.9
30.2
32.9
35.9
39.3
44.1
49.5
55.9
62.6
71.1
79.3
87.7
97.9
107.6
121.1
132.9
145.0
158.9
173.5
192.2
209.3
226.9
241.7
258.5
278.8
299.9
321.7
232.6
247.2
265.1
286.2
291.4
296.8
302.1
309.3
313.7
319.0
324.4
329.9
336.4
342.1
347.8

Rest
of the
world

0.8

A
.4
!5

',5
A
.7
1.2
1.5
1.4
1.5
2.0
2.2
2.1
2.2
2.6
3.0
3.4
2.9
3.1
3.5
3.8
4.5
4.9
5.4
5.8
5.6
6.0
6.8
6.8
7.3
9.3
11.2
16.2
19.5
17.5
21.1
25.4
30.5
43.8
47.6
52.1
51.2
49.9
47.4
40.7
34.9
29.5
48.7
51.3
46.0
42.0
40.8
32.3
35.9
30.5
31.9
28.2
26.8
31.0
22.4
21.3
26.8

TABLE B-9.—Gross national product by sector in 1982 dollars, 1929-88
[Billions of 1982 dollars; quarterly data at seasonally adjusted annual rates]
Gross domestic product
Year or quarter

1929
1933
1939
1940
1941;

1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960

igei
1962

.

. ..

1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1982- IV
1983; IV
1984: IV
1985: IV
1986- 1
II
Ill
IV
1987: 1
11
Ill
IV
1988- 1
III

;

Gross
national
product

709.6
498.5
716.6
772.9
909.4
1,080.3
1,276.2
1,380.6
1,354.8
1,096.9
1,066.7
1,108.7
1,109.0
1,203.7
1,328.2
1,380.0
1,435.3
1,416.2
1,494.9
1,525.6
1,551.1
1,539.2
1,629.1
1,665.3
1,708.7
1,799.4
1,873.3
1,973.3
2,087.6
2,208.3
2,271.4
2,365.6
2,423.3
2,416.2
2,484.8
2,608.5
2,744.1
2,729.3
2,695.0
2,826.7
2,958.6
3,115.2
3,192.4
3,187.1
3,248.8
3,166.0
3,279.1
3,501.4
3,618.7
3,721.7
3,847.0
3,159.3
3,365.1
3,535.2
3,662.4
3,719.3
3,711.6
3,721.3
3,734.7
3,776.7
3,823.0
3,865.3
3,923.0
3,956.1
3,985.2
4,009.4

Business '
Total

704.6
496.1
713.5
770.3
906.0
1,077.1
1,273.4
1,377.7
1,352.6
1,093.3
1,061.6
1,102.5
1,103.4
1,197.4
1,320.3
1,371.7
1,427.4
1,407.8
1,485.5
1,515.0
1,539.7
1,529.7
1,619.1
1,654.1
1,696.6
1,785.6
1,858.5
1,957.1
2,070.6
2,192.5
2,255.0
2,347.9
2,406.2
2,399.1
2,464.1
2,584.9
2,711.8
2,693.5
2,665.7
2,793.7
2,921.2
3,073.0
3,136.6
3,131.7
3,193.6
3,114.8
3,231.2
3,457.5
3,581.9
3,690.9
3,821.4
3,111.3
3,316.6
3,493.1
3,624.7
3,682.8
3,682.9
3,689.8
3,708.0
3,748.9
3,798.4
3,842.0
3,896.3
3,936.6
3,967.0
3,987.0

Total 1
611.6
404.9
586.8
635.5
738.7
832.9
891.6
934.3
914.3
866.3
886.1
925.4
916.7
1,002.8
1,080.5
1,114.7
1,170.0
1,154.6
1,229.7
1,254.1
1,274.0
1,260.4
1,345.8
1,369.7
1,403.2
1,480.9
1,546.7
1,635.2
1,737.4
1,837.1
1,880.9
1,961.1
2,009.8
2,004.4
2,068.0
2,186.6
2,309.1
2,283.9
2,249.6
2,374.8
2,497.2
2,639.2
2,696.4
2,683.2
2,739.8
2,658.2
2,770.1
2,990.1
3,103.3
3,202.0
3,322.5
2,654.1
2,853.2
3,022.2
3,141.7
3,197.7
3,195.1
3,199.8
3,215.3
3,254.4
3,300.9
3,341.2
3,393.6
3,430.5
3,458.9
3,475.1

Nonfarm l
547.8
338.7
518.3
571.2
675.8
774.4
841.6
862.5
839.3
809.0
828.6
875.1
858.5
941.4
1,014.9
1,050.9
1,101.3
1,084.2
1,161.5
1,199.6
1,219.0
1,199.7
1,291.6
1,317.2
1,346.7
1,421.1
1,488.7
1,581.6
1,681.8
1,776.5
1,824.2
1,908.3
1,962.1
1,946.4
2,001.4
2,128.0
2,256.6
2,226.5
2,180.6
2,306.6
2,434.9
2,581.0
2,633.2
2,613.1
2,659.6
2,581.3
2,703.7
2,916.6
3,028.1
3,130.4
3,247.1
2,567.1
2,795.3
2,953.0
3,066.2
3,125.5
3,120.7
3,128.2
3,147.0
3,177.7
3,221.1
3,272.2
3,317.2
3,360.9
3,393.1
3,421.5

1
2

Includes compensation of employees in government enterprises.
Compensation of government employees.
Source: Department of Commerce, Bureau of Economic Analysis.




319

Farm

54.1
56.6
56.4
54.6
58.1
62.4
59.2
57.2
53.7
54.0
49.9
55.2
55.0
58.3
56.0
57.2
59.3
60.9
62.0
60.7
58.8
61.2
58.8
61.1
60.2
59.8
59.8
57.7
59.0
54.7
57.7
55.7
57.2
60.7
62.3
62.0
61.1
60.7
64.8
62.5
62.2
61.0
64.6
64.2
75.7
77.0
61.3
68.5
79.4
83.7
82.5
80.3
55.6
71.1
82.5
83.0
82.9
83.6
85.3
84.1
82.0
82.0
81.8
82.3
70.1
65.2

HouseStatis- holds
and
tical
instidiscrep- tutions
ancy
9.7
9.6
12.1
9.7
4.8
-4.0
-9.2
14.6
21.3
3.3
7.6
-4.9
3.2
3.1
9.7
6.5
9.4
9.5
6.2
-6.2
-3.8

-~4!6
-8.7
-3.7

-i!s
-4.1
-3.4
5.9
-1.0
-2.8
-9.5

-2.7
4.2
-3.4
-8.6
-3.3
4.2
5.6
.1
-2.8
-1.4
5.9
4.4
-.1
5.0
5.0
-4.3
-12.1
-7.0
6.7
2.3
-1.9
-7.1

-10.8
-8.5
-12.0
-17.0

-7.4
-2.2
-13.0
-5.4
-12.8
-4.3
-11.6

34.4
27.1
33.3
35.8
35.8
36.9
34.3
34.3
34.4
35.4
37.9
41.2
42.4
45.0
46.1
46.2
47.7
48.4
53.2
56.1
57.7
60.7
62.7
67.4
68.0
70.7
72.5
74.6
77.4
80.4
83.1
85.6
88.2
87.0
88.8
91.2
93.4
93.9
96.4
97.0
98.0
• 101.0
103.7
107.3
109.9
112.7
114.9
117.6
121.3
125.5
129.0
113.8
115.8
119.0
123.2
124.2
125.7
125.9
126.4
127.0
128.1
130.0
130.7
133.3
134.4
136.8

Government 2
Total

58.6
64.0
93.4
99.0
131.5
207.4
347.6
409.1
403.8
191.6
137.7
135.8
144.2
149.6
193.7
210.7
209.7
204.8
202.6
204.8
208.0
208.6
210.6
217.1
225.4
233.9
239.2
247.3
255.8
275.0
291.0
301.2
308.2
307.7
307.4
307.1
309.3
315.7
319.6
321.9
326.0
332.8
336.5
341.2
343.9
343.9
346.3
349.8
357.4
363.3
369.9
343.5
347.5
351.9
359.9
360.9
362.1
364.0
366.2
367.5
369.4
370.8
372.0
372.8
373.7
375.2

Federal

13.2
16.2
38.9
44.1
76.2
152.9
294.6
357.5
350.7
135.0
76.7
73.2
77.1
80.3
122.8
137.5
133.2
125.0
119.2
116.1
114.5
109.5
107.5
108.9
111.5
116.7
116.1
116.8
117.3
128.1
138.5
140.7
141.0
133.2
125.5
118.3
113.6
113.5
112.8
112.7
112.7
113.9
113.0
114.4
115.8
117.0
119.0
120.5
122.3
122.5
123.5
117.6
119.4
121.2
122.5
122.4
122.3
122.4
122.9
123.0
123.4
123.7
123.9
123.9
123.8
124.2

State
and
local

45.3
47.9
54.6
55.0
55.3
54.4
52.9
51.7
53.2
56.6
61.0
62.6
67.1
69.3
71.0
73.3
76.5
79.8
83.4
88.7
93.5
99.2
103.1
108.2
113.9
117.3
123.1
130.5
138.5
146.9
152.4
160.5
167.2
174.5
181.9
188.8
195.7
202.1
206.8
209.2
213.3
219.0
223.5
226.8
228.1
226.9
227.3
229.3
235.0
240.8
246.4
225.9
228.1
230.7
237.4
238.5
239.8
241.7
243.4
244.5
246.1
247.1
248.1
249.0
249.9
251.0

Rest
of the
world

4.9
2.4
3.1
2.6
3.4
3.1
2.7
2.9
2.3
3.6
5.1
6.2
5.6
6.2
7.9
8.3
7.9
8.4
9.4
10.7
11.5
9.5
10.0
11.1
12.1
13.9
14.9
16.1
17.0
15.9
16.3
17.7
17.0
17.1
20.7
23.7
32.2
35.9
29.3
33.0
37.4
42.1
55.7
55.5
55.2
51.2
47.9
43.9
36.9
30.9
25.6
48.0
48.5
42.1
37.6
36.5
28.7
31.5
26.8
27.8
24.6
23.3
26.7
19.5
18.3
22.4

TABLE B-10.—Gross national product by industry, 1947-87
[Billions of dollars]
Gross domestic product
FiGovern- StaTrans- Whole- nance,
ment tis- Rest
portation sale insur- Serv- and
of the
and ance, ices govern- tical world
Dura- Nonand
disble durable public retail and
ment crepenter- ancy
goods goods utilities trade real
estate
prises

Manufacturing

Year

AgriGross
national culture,
Conproduct forestry, Mining strucand
tion Total
fisheries

1947
1948
1949

235.2
261.6
260.4

20.8
24.0
19.5

6.8
9.4
8.1

1950
1951
1952
1953
1954

288.3
333.4
351.6
371.6
372.5

20.8
23.9
23.2
21.4
20.8

1955 .
1956
1957
1958
1959

405.9
428.2
451.0
456.8
495.8

1960
1961
1962
1963
1964
1965 .
1966...
1967
1968
1969

66.2
74.7
72.2

33.5
38.2
37.1

32.7
36.6
35.0

21.0
23.7
23.9

44.2
48.4
48.0

23.8
26.9
29.2

20.2
21.9
22.6

20.2
1.8
20.8 -1.3
23.2
.8

1.2
1.5
1.4

9.3
10.2
10.2
10.7
11.0

13.2 84.0
15.6 99.0
16.9 103.3
17.5 112.5
17.7 106.7

45.9
55.5
59.0
66.1
61.0

38.1
43.4
44.3
46.4
45.7

26.6
30.2
32.2
34.2
33.8

51.5
56.8
59.0
60.4
61.6

32.2
35.5
39.1
43.3
47.0

24.2
26.4
28.1
30.2
31.6

24.2
31.2
35.7
36.8
37.4

.8
2.7
1.8
2.6
2.7

1.5
2.0
2.2
2.1
2.2

20.0
19.8
19.6
22.1
20.4

12.5
13.6
13.7
12.6
12.5

19.1
21.3
22.2
21.8
23.7

121.3
127.2
131.8
124.3
141.8

70.8
73.9
78.0
70.0
81.6

50.4
53.3
53.9
54.3
60.3

36.8
39.6
41.7
41.9
45.1

67.0
71.3
75.0
76.4
83.3

50.7
54.3
58.5
63.1
68.2

35.1
38.7
41.7
44.0
48.3

39.0
1.8
41.2 -1.9
44.5 -1.2
47.8
50.8

=-l:s

2.6
3.0
3.4
2.9
3.1

515.3
533.8
574.6
606.9
649.8

21.7
21.8
22.3
22.3
21.4

12.8
12.9
13.1
13.4
13.8

24.3
25.3
27.1
28.9
31.6

144.4
145.0
158.6
168.1
180.2

82.5
81.6
91.9
98.0
105.7

61.9
63.3
66.8
70.1
74.5

47.3
48.9
51.9
54.8
58.3

85.7
88.0
94.1
98.2
107.1

72.8
76.9
81.7
86.5
92.0

51.4
54.9
59.2
63.3
69.0

54.2 =2.8
57.6 = 1.2
62.1
.0
67.0 = .6
72.5 = 1.4

3.5
3.8
4.5
4.9
5.4

705.1
772.0
816.4
892.7
963.9

24.2
25.3
24.9
25.7
28.6

14.0
14.6
15.2
16.2
17.1

34.7
37.9
39.7
43.5
48.7

198.4
217.4
222.9
243.6
257.1

118.4
130.8
133.7
146.1
154.2

80.0
86.6
89.2
97.5
102.9

62.6
67.4
70.7
76.4
82.6

115.0
124.1
132.9
146.8
159.2

98.9 74.6
106.9 82.5
115.6 90.6
125.1 99.1
136.3 110.5

78.2 = 1.2
2.1
88.1
98.4 -.4
110.5 -1.1
121.0 -3.9

5.8
5.6
6.0
6.8
6.8

1970
1971
1972... .
1973
1974

1,015.5
1,102.7
1,212.8
1,359.3
1,472.8

29.9
32.2
37.4
56.2
55.0

18.7
18.8
20.2
23.4
36.9

51.4
56.5
63.0
70.4
74.5

252.3
265.7
292.5
326.4
338.5

145.9
153.8
172.6
195.4
201.7

106.3
111.9
119.9
131.0
136.7

88.4
97.1
108.0
118.7
129.1

168.7
183.7
202.6
225.6
246.0

145.8
161.4
174.8
190.5
206.7

120.2
130.2
144.6
163.2
179.4

134.0
145.9
160.1
173.1
189.0

1975
1976 ..
1977
1978
1979

1,598.4
1,782.8
1,990.5
2,249.7
2,508.2

56.3
55.7
58.9
70.1
83.1

41.3 76.5 357.3
46.0 86.2 409.3
50.2 97.9 465.3
56.5 115.6 518.8
72.7 131.4 561.8

206.3
239.7
277.7
317.4
345.2

151.0
169.7
187.7
201.4
216.5

141.7
160.4
178.9
201.0
216.1

273.7
299.7
332.8
373.5
415.8

221.7
246.1
280.3
326.3
363.3

199.8
224.9
253.4
289.1
328.7

210.1
2.5
229.7
3.6
247.4
.0
270.3 = 1.9
292.4 = 1.0

17.5
21.1
25.4
30.5
43.8

1980
1981
1982
1983
1984

2,732.0
3,052.6
3,166.0
3,405.7
3,772.2

77.2
92.0
89.6
74.3
92.9

107.3
143.7
132.1
118.4
119.4

581.0
643.1
634.6
683.2
771.9

351.8
385.8
362.5
385.6
451.1

229.2
257.3
272.1
297.6
320.8

240.8
269.6
288.4
320.0
354.4

438.8
483.1
506.5
542.9
614.0

400.6
449.3
475.1
536.4
572.8

374.0
422.6
463.6
515.5
580.2

322.1
354.7
383.9
410.5
442.5

1.2
5.4

47.6
52.1
51.2
49.9
47.4

1985
1986
1987 ....

4,014.9
4,240.3
4,526.7

92.0
92.6
94.9

114.2 186.6 789.5
82.1 204.0 820.1
85.4 218.5 853.6

458.8
466.1
480.0

330.8
354.1
373.6

374.1
393.5
408.2

658.2 639.5 648.1
698.4 708.6 716.3
740.4 775.4 793.5

476.7 =4.8
503.4 = 13.6
535.3 -8.1

40.7
34.9
29.5

9.1
11.5
11.5

137.7
138.4
140.9
149.6
171.5

= 1.1 7.3
1.8 9.3
= 1.6 11.2
=4.3 16.2
= 1.7 19.5

4.9
4.1

Note.—The industry classification is on an establishment basis and is based on the 1972 Standard Industrial Classification.
Source: Department of Commerce, Bureau of Economic Analysis.




320

TABLE B-ll.—Gross national product by industry in 1982 dollars, 1947-87
(Billions of 1982 dollars]
Gross domestic product

FiGovern- StaTranspor- Whole- nance,
Rest
ment
tisand
tation sale insur- Servof the
1
Dura- Non- and
and ance, ices govern- tical Resid- world
dis- ual
ble durable public retail and
ment
enter- crepgoods goods util- trade real
ities
estate
prises ancy

Manufacturing

Year

Gross
Connational culture,
forestproduct ry, and Mining struction Total
fisher-

ies

76.7 226.1 138.1
90.0 238.5 145.0
89.4 226.3 133.2

1947
1948
1949

1,066.7
1,108.7
1,109.0

55.6
61.3
61.0

67.6
72.4
65.7

88.0 100.0
93.5 98.7
93.1 90.7

1950
1951
1952
1953
1954

1,203.7
1,328.2
1,380.0
1,435.3
1,416.2

64.3
62.6
64.2
66.3
68.2

72.8
80.8
81.5
84.3
83.3

100.0
110.9
115.9
119.9
124.8

257.7
288.4
298.2
319.9
296.6

156.7
181.4
190.6
208.4
185.8

101.0
107.0
107.6
111.5
110.8

95.3
104.9
104.5
106.7
104.1

182.1
183.7
189.5
195.6
197.1

119.7
126.4
134.7
142.2
149.5

1955
1956
1957
1958
1959

1,494.9
1,525.6
,1,551.1
1^539.24
1,629.1

69.1
67.8
65.9
68.3
65.8

92.0
96.5
96.2
89.1
94.1

133.3
142.7
142.4
147.5
160.4

327.7
330.6
332.5
303.5
338.0

208.5
207.3
208.7
180.1
203.0

119.2
123.3
123.8
123.4
135.0

112.3
117.7
119.9
116.1
123.5

215.0
221.5
225.1
225.0
240.7

1960
1961
1962 ".".
1963
1964

1,665.3
1,708.7
1,799.4
1,873.3
1,973.3

68.3
67.5
67.1
67.2
65.2

94.2
95.6
98.1
102.2
105.7

163.1
165.1
172.5
177.5
185.9

338.7
339.4
368.3
397.4
425.4

202.4
199.9
220.5
238.9
259.3

136.3
139.5
147.8
158.5
166.2

127.8
130.0
136.3
143.8
150.4

1965
1966
1967
1968
1969

2,087.6
2,208.3
2,271.4
2,365.6
2,423.3

66.7
62.4
65.5
63.6
65.3

109.4
115.0
120.2
124.7
128.9

193.7
194.4
190.7
190.2
183.6

462.5
497.9
496.6
522.0
536.7

286.9
312.3
311.9
326.2
334.1

175.6
185.6
184.7
195.8
202.6

1970
1971
1972
1973
1974

2,416.2
" 2,484.8
2,608.5
2,744.1
2,729.3

68.8
70.6
70.9
70.3
69.7

134.5
132.4
134.4
133.4
130.3

168.0
162.7
166.7
170.4
162.3

506.8
515.5
561.2
621.3
591.6

304.8
305.5
336.5
377.0
363.5

1975
1976
1977
1978
1979

2,695.0
2,826.7
2,958.6
3,115.2
3,192.4

73.1
71.5
71.6
71.8
76.1

125.6
124.4
126.2
128.8
130.0

149.4
158.1
165.1
176.7
173.5

547.5
600.6
645.0
683.4
697.1

1980
1981
1982
1983
1984

3,187.1
3,248.8
3,166.0
3,279.1
3,501.4

76.2
88.0
89.6
74.5
82.2

135.6
139.8
132.1
125.4
133.0

161.6
147.4
140.9
147.3
159.2

665.4
676.1
634.6
675.5
757.9

1985
1986
1987

3,618.7
3,721.7
3,847.0

93.8
97.2
96.1

130.1 165.4 786.8 493.7
115.7 173.1 804.6 505.0
117.5 175.8 839.5 525.2

7.6 -13.6
156.2
155.5 -4.9 -7.5
3.2 -4.2
164.0

5.1
6.2
5.6

133.8
136.9
139.4
142.7
145.9

169.2
214.0
231.9
230.9
225.4

6.2
7.9
8.3
7.9
8.4

160.2
168.8
178.3
184.5
195.9

153.0
161.1
168.6
174.3
183.5

6.2 -6.6
223.4
225.6 -6.2 -11.1
229.2 -3.8 -14.7
230.1 -.5 -8.1
46 -11.0
232.8

9.4
10.7
11.5
9.5
10.0

245.4
247.8
263.9
273.9
290.7

206.5
215.0
226.5
235.9
245.8

190.2
197.7
207.7
217.4
230.7

240.3
249.2
258.4
264.5
274.0

-8.7
-3.7
.1
-1.8
-4.1

11.1
12.1
13.9
14.9
16.1

161.5
174.2
178.1
189.5
200.3

309.8
326.5
335.4
354.8
361.7

259.8
271.1
282.4
296.0
314.0

240.4
253.9
265.2
274.7
287.8

284.3
305.5
322.3
332.6
340.2

-3.4 -14.0
5.9 -14.5
-1.0
~2.&
-2.8
-9.5 -2.7

17.0
15.9
16.3
17.7
17.0

202.0
210.0
224.8
244.3
228.1

203.9
209.8
223.8
243.0
248.8

367.6
385.7
414.8
437.0
426.2

320.7
335.9
350.9
367.7
381.6

295.7
302.4
320.0
340.2
347.5

339.6
340.0
340.5
343.4
350.6

-2.7 -3.9
4.8
4.2
5.1
-3.4
-8.6 -6.2
-3.3 -11.8

17.1
20.7
23.7
32.2
35.9

325.2
357.4
386.2
415.9
423.5

222.2
243.2
258.9
267.5
273.5

246.4
257.1
268.5
284.8
293.4

433.1
454.4
479.2
502.3
511.7

387.6
403.1
417.7
442.5
459.2

352.4
367.7
388.4
411.9
429.8

4.2
355.0
5.6
357.7
.1
362.9
371.5 -2.8
376.2 -1.4

-8.7
-6.6
-3.4
2.1
-9.0

29.3
33.0
37.4
42.1
55.7

401.5
404.9
362.5
390.4
466.8

263.9
271.2
272.1
285.1
291.1

293.4
296.2
288.4
300.8
320.4

500.4
507.3
506.5
529.1
578.9

464.3
474.2
475.1
489.0
506.6

442.6
462.5
463.6
486.6
514.0

382.7
385.3
383.9
387.4
392.1

5.9
4.4
-.1
5.0
5.0

3.5
12.5
.0
10.6
8.1

55.5
55.2
51.2
47.9
43.9

2.3
13.5
4.2

36.9
30.9
25.6

157.8 103.0 124.7
161.9 107.7 128.9
166.1 112.2 129.0

293.0 326.0 610.3 524.3 546.4
299.7 331.6 642.9 537.6 578.9
314.3 349.5 660.0 559.4 610.8

3.1
9.7
6.5
9.4
9.5

400.8 -4.3
407.9 -12.1
415.7 -7.0

-.6
2.0
5.3
9.4
3.5

-11.6
-6.9
-13.3
-19.7
-12.6

1
Equals GNP in constant dollars measured as the sum of incomes less GNP in constant dollars measured as the sum of gross product
by industry.
Note.—The industry classification is on an establishment basis and is based on the 1972 Standard Industrial Classification.
Source: Department of Commerce, Bureau of Economic Analysis.




321

TABLE B-12.—Gross domestic product of nonfinancial corporate business, 1929-88
[Billions of dollars; quarterly data at seasonally adjusted annual rates]

Year or
quarter

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950 .
1951
1952 ,
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971 .
1972
1973
1974
1975
1976
1977.. .
1978
1979
1980.
1981
1982
1983
1984
1985
1986
1987
1982: IV
1983: IV
1984: IV
1985: IV
1986:1
II
III
IV
1987: 1
II
Ill
IV
1988- 1
II
Ill

Capital
Gross condomes- sumptic
tion
product allowof ances
non- with
financial capital Total
corpo- conrate sumpbusi- tion
ness adjustment

50.4
24.6
44.0
50.6
65.9
83.3
99.1
102.6
95.8
99.8
121.2
138.9
135.2
153.6
176.3
184.0
196.6
193.5
218.5
233.6
244.1
238.0
267.1
277.6
285.2
311.1
331.1
357.7
392.7
430.2
452.6
499.7
542.2
560.4
605.1
671.8
753.0
812.8
881.5
995.5
1,126.1
1,274.1
1,417.4
1,540.8
1,738.4
1,782.2
1,914.2
2,146.7
2,267.1
2,371.6
2,513.5
1,779.4
2,012.5
2,201.8
2,309.4
2,344.9
2,348.8
2,383.6
2,409.3
2,438.8
2,482.7
2,546.9
2,585.6
2,633.2
2,684.0
2,732.1

5.3
4.2
4.8
5.0
5.4
6.0
6.1
6.2
6.3
7.4
9.0
10.5
11.2
12.1
13.9
14.9
15.9
16.8
17.9
20.1
22.1
23.2
24.3
25.3
26.0
27.0
28.2
29.6
31.6
34.5
37.8
41.7
45.7
50.2
55.1
60.5
65.6
76.8
92.5
103.0
115.1
130.8
150.7
172.5
200.2
223.0
229.8
240.1
252.6
264.1
276.2
229.7
232.2
245.0
257.4
259.7
262.8
265.3
268.7
271.1
274.5
278.0
281.3
286.8
290.0
293.0

45.1
20.4
39.1
45.6
60.5
77.3
93.0
96.4
89.5
92.4
112.2
128.4
123.9
141.5
162.4
169.1
180.7
176.7
200.7
213.5
221.9
214.8
242.8
252.4
259.1
284.2
303.0
328.0
361.1
395.7
414.8
458.0
496.6
510.2
550.0
611.3
687.4
736.0
789.0
892.5
1,010.9
1,143.3
1,266.7
1,368.2
1,538.1
1,559.3
1,684.4
1,906.6
2,014.5
2,107.5
2,237.3
1,549.7
1,780.3
1,956.7
2,051.9
2,085.2
2,086.0
2,118.3
2,140.7
2,167.7
2,208.3
2,268.8
2,304.3
2,346.4
2,394.0
2,439.1

Net domestic product
Domestic income
Corporate profits with inventory valuation and capital
consumption adjustments

Indirect
business

tax,
etc.1

Total

3.4
3.8
5.1
5.5
6.4
6.8
7.3
8.1
8.9
10.1
11.9
13.2
13.9
15.3
16.5
18.0
19.2
18.6
20.6
22.4
23.7
24.1
26.2
28.5
29.8
32.2
34.2
36.8
39.4
40.7
43.3
49.9
54.9
59.0
64.7
69.4
76.5
81.5
88.3
95.4
104.4
114.1
122.1
138.5
165.9
166.9
182.9
204.2
218.4
227.7
239.8
169.7
189.6
210.6
221.5
227.8
221.5
231.2
230.4
232.7
238.4
243.6
244.5
249.2
253.0
258.8

41.8
16.5
34.1
40.2
54.1
70.5
85.7
88.3
80.6
82.3
100.3
115.2
110.1
126.2
146.0
151.1
161.5
158.1
180.0
191.1
198.2
190.7
216.7
223.9
229.4
252.0
268.7
291.2
321.7
355.0
371.5
408.1
441.6
451.2
485.3
541.9
610.8
654.5
700.7
797.1
906.5
1,029.2
1,144.7
1,229.7
1,372.3
1,392.4
1,501.5
1,702.5
1,796.1
1,879.8
1,997.5
1,379.9
1,590.7
1,746.1
1,830.4
1,857.4
1,864.4
1,887.1
1,910.3
1,935.0
1,969.8
2,025.3
2,059.7
2,097.2
2,141.1
2,180.3

ComProfits
pensation of
Profits after tax
employ- Total Profits Profits
ees
before tax
Divi- Undistax liability Total dends tributed
profits
32.3
16.7
28.2
31.2
39.8
51.0
62.2
65.1
61.9
67.2
79.1
87.7
85.2
94.7
110.2
118.2
128.6
126.4
138.4
151.3
159.0
155.8
171.5
181.2
185.3
200.1
211.1
226.7
246.5
274.0
292.3
323.2
358.8
378.7
402.0
447.1
505.9
556.8
580.4
656.3
741.0
847.4
962.0
1,051.1
1,160.5
1,203.9
1,266.1
1,399.8
1,489.8
1,564.9
1,661.4
1,206.5
1,319.7
1,436.8
1,524.0
1,543.2
1,551.7
1,569.6
1,595.3
1,617.2
1,640.5
1,673.3
1,714.7
1,739.6
1,777.8
1,816.4

8.0
-1.9
4.4
7.6
13.0
18.2
22.4
22.2
17.7
14.4
20.4
26.6
23.9
30.6
34.7
31.7
31.5
30.1
40.0
38.1
37.0
32.2
42.1
39.2
40.1
47.3
52.8
59.3
69.1
73.7
70.5
74.8
69.6
55.4
65.2
75.7
82.4
69.4
91.6
113.3
134.9
146.0
139.1
123.1
144.2
111.9
165.6
222.4
225.3
230.6
237.5
100.1
199.5
222.1
226.3
232.2
229.5
232.4
228.1
227.7
233.3
250.4
238.4
250.6
252.6
248.2

8.4
.6
6.1
8.8
16.4
20.1
23.6
22.2
17.8
22.0
29.1
31.8
24.9
38.5
39.1
33.8
34.9
32.1
42.0
41.8
39.8
33.7
43.1
39.7
39.5
44.2
48.9
55.4
65.2
70.3
66.5
73.1
69.6
57.0
65.6
76.8
96.9
107.2
109.2
138.3
160.5
182.1
195.8
181.8
181.5
129.7
159.3
196.0
170.2
172.6
210.2
116.3
183.2
181.9
174.2
155.9
167.2
176.2
191.0
196.6
207.9
224.6
211.6
228.4
240.5
240.4

1.2
.5
1.4
2.7
7.5
11.2
13.8
12.6
10.2
8.6
10.8
11.8
9.3
16.9
21.2
17.8
18.5
15.6
20.2
20.1
19.1
16.2
20.7
19.2
19.5
20.6
22.8
24.0
27.2
29.5
27.8
33.6
33.3
27.2
29.9
33.8
40.2
42.2
41.5
53.0
59.9
67.1
69.6
67.0
63.9
46.3
59.4
73.5
69.9
76.8
99.0
41.0
70.6
66.4
71.6
69.0
73.7
78.2
86.2
91.6
97.2
105.3
101.7
104.4
109.4
109.1

7.3
.1
4.7
6.1
9.0
8.9
9.8
9.6
7.6
13.4
18.3
20.0
15.6
21.6
17.9
16.0
16.4
16.4
21.8
21.8
20.7
17.5
22.4
20.5
20.1
23.5
26.2
31.4
38.0
40.8
38.6
39.5
36.2
29.8
35.6
43.0
56.7
65.0
67.7
85.4
100.6
115.0
126.2
114.8
117.6
83.4
99.9
122.5
100.4
95.8
111.2
75.4
112.7
115.5
102.6
87.0
93.5
98.1
104.8
105.0
110.6
119.3
109.9
124.1
131.1
131.3

1
Indirect business tax and nontax liability plus business transfer payments less subsidies.
Source: Department of Commerce, Bureau of Economic Analysis.




322

5.1
2.0
3.3
3.5
3.9
3.7
3.9
4.1
4.1
4.8
5.5
6.0
6.0
7.5
7.1
7.1
7.3
7.4
8.5
9.0
9.3
9.3
10.0
10.6
10.6
11.4
12.6
13.7
15.6
16.8
17.5
19.1
19.1
18.5
18.5
20.1
21.1
21.7
24.8
27.8
32.0
37.2
39.3
45.5
53.4
59.7
66.5
69.5
72.2
74.8
83.8
62.2
68.8
68.6
72.3
72.2
76.6
74.0
76.4
79.8
80.7
83.9
90.8
74.6
86.2
98.7

2.2
-1.9
1.4
2.6
5.0
5.2
5.8
5.6
3.5
8.6
12.8
14.0
9.6
14.1
10.8
8.8
9.1
9.0
13.4
12.7
11.4
8.2
12.4
9.9
9.5
12.2
13.5
17.7
22.4
24.0
21.2
20.4
17.1
11.3
17.1
22.9
35.6
43.3
42.9
57.6
68.6
77.8
86.9
69.3
64.2
23.7
33.4
53.0
28.2
21.1
27.4
13.2
43.9
46.9
30.3
14.8
16.9
24.1
28.4
25.2
29.9
35.4
19.1
49.5
44.9
32.7

Inventory
valuation
adjustmerit

Capital Net
con- intersump- est
tion
adjustment

0.5 -0.9
-2.1
-.7 -~i!o
= .2 -1.0
= 2.5 -1.0
= 1.2
=.8 -'.A

-'.6
-5.3
-5.9
-2.2
1.9
-5.0
-1.2
1.0
= 1.0

'.5
-2.3
-2.8
-3.0
-2.9
-2.9
-3.2
-3.0
=2.4
= 1.6

-L7
-2.7 -~U
= 1.5 = 1.2
-1.2
= 13 = .8
-.2 =.2

!o

11
3.9
4.4
-~L2 5.2
5.5
-2.1
= 1.6 5.5
=3.7 5.3
-5.9
5.9
-6.6 5.0
4.2
-4.6
-6.6
5.5
=20.0
5.6
-39.5
1.7
-11.0 ^6.6
= 14.9 = 10.2
-16.6 -9.0
-25.3 -10.9
-43.2 = 13.5
=43.1 -15.5
=24.2 = 13.1
-10.4 -7.5
= 10.9 17.1
-5.8 32.1
-1.7 56.7
8.3 49.6
-18.0 45.3
= 13.4 =2.8
-8.1 24.4
= 1.6 41.8
=6.6 58.7
21.0 55.3
11.8 50.6
8.7 47.5
= 8.1 45.2
-14.4 45.5
=20.0 45.5
= 19.5 45.3
-18.2 45.0
-19.4 41.5
=27.4 39.5
=29.3 37.1
.1

1.4
1.7
1.5
1.4
1.3
1.3
1.1
1.0
1.0
.7
.8
.9
1.0
.9
1.1
1.2
1.3
1.6
1.6
1.8
2.2
2.7
3.1
3.5
4.0
4.5
4.8
5.3
6.1
7.4
8.8
10.1
13.2
17.1
18.1
19.2
22.5
28.3
28.7
27.5
30.6
35.9
43.5
55.5
67.5
76.6
69.8
80.3
81.1
84.3
98.6
73.4
71.5
87.2
80.1
82.0
83.2
85.1
86.9
90.1
96.0
101.6
106.6
107.1
110.7
115.7

TABLE B-13.—Ontput, costs, and profits of nonfinancial corporate business, 1948-88
[Quarterly data at seasonally adjusted annual rates]

Year or
quarter

Gross domestic
product of
nonfmancial
corporate
business
(billions of
dollars)

Current-dollar cost and profit per unit of output (dollars) '

Total
cost

and
profit 2
Current
dollars

1982
dollars

Capital
consumption
allowances
with
capital
consumption
adjustment

Compen-

Indirect
business

Corporate profits with
inventory valuation and
capital consumption
adjustments

Output
per hour

sation

tax,

etc.3

Net

of
employees

interest
Profits
Total

tax
liability

Profits
after
tax 4

of all
employees
(1982
dollars)

Compensation
per hour

of all
employ-

ees
(dollars)

1948
1949

138.9
135.2

538.9

0.258

0.022

0.027

0.002

.027

0.163
.165

0.049

.262

0.019
.022

0.025

515.7

.046

.018

.028

.002

1950
1951
1952
1953
1954
1955
1956
1957
1958
1959

153.6
176.3
184.0
196.6
193.5
218.5
233.6
244.1
238.0
267.1

570.4
622.4
637.3
668.4
650.8

.269
.283
.289
.294
.297
.304
.313
.322
.328
.335

.021
.022
.023
.024
.026
.025
.027
.029
.032
.030

.027
.026
.028
.029
.029
.029
.030
.031
.033
.033

.166
.177
.185
.192
.194
.192
.203
.210
.215
.215

.054
.056
.050
.047
.046
.056
.051
.049
.044
.053

.030
.034
.028
.028
.024
.028
.027
.025
.022
.026

.024
.022
.022
.020
.022
.028
.024
.024
.022
.027

.002
.002
.002
.002
.002
.002
.002
.003
.004
.004

12.053
12.506

2.589
2.685

1960
1961

277.6
285.2

820.8
839.1

1962.,
1963..!

1964
1965
1966
1967
1968
1969

311.1
331.1
357.7
392.7
430.2
452.6
499.7
542.2

904.8
964.4
1,029.0
1,111.7
1,189,5
1,217.0
1,286.5
1,339.6

,338
.340
.344
.343
.348
.353
.362
.372
.388
.405

.031
.031
.030
.029
.029
.028
.029
.031
.032
.034

.035
.035
.036
.035
.036
.035
.034
.036
.039
.041

.221
.221
.221
.219
.220
.222
.230
.240
.251
.268

.048
.048
.052
.055
.058
.062
.062
.058
.058
.052

.023
.023
.023
.024
.023
.024
.025
.023
.026
.025

.024
.025
.029
.031
.034
.038
.037
.035
.032
.027

.004
.005
.005
.005
.005
.005
.006
.007
.008
.010

12.672
13.058
13.550
14.135
14.655
14.979
15.205
15.344
15.715
15.700

2.797
2.884
2.997
3.093
3.229

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

560.4
605.1
671.8
753.0
812.8
881,5
995.5
1,126.1
1,274.1
1,417.4

1,325.2
1,360.6
1,461.1
1,569.7
1,533.4
1,488.1
1,583.5
1,686.6
1,789.8
1,840.4

.423
.445
.460
.480
.530
.592
.629
.668
.712
.770

.038
.040
.041
.042
.050
.062
.065
.068
.073
.082

.045
.048
.048
.049
.053
.059
.060
.062
.064
.066

.286
.295
.306
.322
.363
.390
.414
.439
.473
.523

.042
.048
.052
.053
.045
.062
.072
.080
.082
.076

.021
.022
.023
.026
.028
.028
.033
.036
.037
.038

.021
.026
.029
.027
.018
.034
.038
.044
.044
.038

.013
.013
.013
.014
.018
.019
.017
.018
.020
.024

15.713
16.158
16.490
16.832
16.331
16.691
16.986
17.257
17.358
17.221

4.490
4.774
5.045
5.425
5.930

6.510
7.040
7.581
8.219
9.002

1980
1981
1982
1983
1984
1985
1986
1987

1,540.8
1,738.4
1,782.2
1,914.2
2,146.7
2,267.1
2,371.6
2,513.5

1,807.9
1,837.2
1,782.2
1,886.0
2,036.5
2,117.4
2,177.2
2,270.4

.852
.946
1.000
1.026
1.054
1.071
1.089
1.107

.095
.109
.125
.123
.118
.119
.121
.122

.077
.090
.094
.098
.100
.103
.105
.106

.581
.632
.676
.679
.687
.704
.719
.732

.068
.078
.063
.089
.109
.106
.106
.105

.037
.035
.026
.032
.036
.033
, .035
.044

.031
.044
.037
.057
.073
.073
.071
.061

.031
.037
.043
.037
.039
.038
.039
.043

17.096
17.194
17.318
17.865
18.287
18.584
18.927
19.216

9.939
10.861
11.699
12.122
12.569
13.075
13.605
14.062

1982- IV
1983: IV
1984- IV
1985- IV

1,779.4
2,012.5
2,201.8
2,309.4

1,760.2
1,940.5
2,069.5
2,137.7

1.011
1.037
1.064
1.080

.131
.120
.118
.120

.096
.098
.102
.104

.685
.680
.694
.713

.057
.103
.107
.106

.023
.036
.032
.033

.034
.066
.075
.072

.042
.037
.042
.037

17.383
18.029
18.359
18.639

11.914
12.261
12.746
13.288

1986: 1

III
IV

2,344.9
2,348.8
2,383.6
2,409.3

2,172.3
2,163.2
2,174.2
2,199.0

1.079
1.086
1.096
1.096

.120
.122
.122
.122

.105
.102
.106
.105

.710
.717
.722
.725

.107
.106
.107
;104

.032
.034
.036
.039

.075
.072
.071
.065

.038
.038
.039
.040

18.901
18.864
18.921
19.043

13.427
13.532
13.660
13.815

1987- 1
II
Ill
IV

2,438.8
2,482.7
2,546.9
2,585.6

2,215.0
2,248.0
2,296.1
2,322.5

1.101
1.104
1.109
1.113

.122
.122
.121
.121

.105
.106
.106
.105

.730
.730
.729
.738

.103
.104
.109
.103

.041
.043
.046
.044

.061
.061
.063
.059

.041
.043
.044
.046

18.996
19.142
19.362
19.357

13.869
13.969
14.110
14.291

1988:1

2,633.2
2,684,0
2,732.1

2,363.5
2,380.9
2,395.5

1.114
1.127
1.140

.121
.122
.122

.105
.106
.108

.736
.747
.758

.106
.106
.104

.044
.046
.046

.062
.060
.058

.045
.047
.048

19.560
19.481
19.428

14.39?
14.546
14.739

||

II
Ill

719.3
747.0
758.1
725.2
798.5

3.321
3.502
3.685
3.948
4.206

1
Output is measured by gross domestic product of nonfinancial corporate business in 1982 dollars.
2
This is equal to the deflator for gross domestic product of nonfinancial corporate business with the decimal point shifted two
places to the left.
3
Indirect business tax and nontax liability plus business transfer payments less subsidies.
4
With inventory valuation and capital consumption adjustments.
Sources: Department of Commerce (Bureau of Economic Analysis) and Department of Labor (Bureau of Labor Statistics).




323

TABLE B-14.—Personal consumption expenditures, 1940-88
[Billions of dollars; quarterly data at seasonally adjusted annual rates]

Year or
quarter

Services

Nondurable goods

Durable goods
Personal
FurniconMotor ture
sumption
vehi- and
expendi- Total » cles house- Total »
tures
and hold
parts equipment

Cloth- Gasoline
ing
and and
shoes oil

Food

Fuel
oil
and
coal

Household
operation

Total ' Housing 2

Trans- MediElec- porta- cal
tricity tion care
Total * and
gas

1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959

71.0
80.8
88.6
99.5
108.2
119.6
143.9
161.9
174.9
178.3
192.1
208.1
219.1
232.6
239.8
257.9
270,6
285.3
294.6
316.3

7.8
9.7
6.9
6.5
6.7
8.0
15.8
20.4
22.9
25.0
30.8
29.9
29.3
32.7
32.1
38.9
38.2
39.7
37.2
42.8

2.8
3.5
.7
.8
.8
1.0
4.1
6.6
8.0
10.6
13.7
12.2
11.3
13.9
13.0
17.8
15.8
17.3
14.8
18.9

3.8
4.8
4.6
3.9
3.8
4.5
8.4
10.6
11.5
11.3
13.7
14.1
14.0
14.7
14.8
16.4
17.3
17.2
16.9
18.1

37.0
42.9
50.8
58.6
64.3
71.9
82.7
90.9
96.6
94.9
98.2
109.2
114.7
117.8
119.7
124.7
130.8
137.1
141.7
148.5

20.2
23.4
28.4
33.2
36.7
40.6
47.4
52.3
54.2
52.5
53.9
60.7
64.1
65.4
66.8
68.6
71.4
75.1
77.9
80.7

7.5
8.8
11.0
13.4
14.6
16.5
18.2
18.8
20.1
19.3
19.6
21.3
22.0
22.2
22.3
23.3
24.4
24.5
24.9
26.4

2.3
2.6
2.1
1.3
1.4
1.8
3.4
4.0
4.8
5.3
5.5
6.1
6.8
7.4
7.8
8.6
9.4
10.2
10.6
11.3

1.5
1.7
1.9
2.0
2.0
2.2
2.5
3.0
3.4
3.1
3.4
3.5
3.5
3.4
3.5
3.8
3.9
4.1
4.2
4.0

26.2
28.3
31.0
34.3
37.2
39.7
45.4
50.6
55.5
58.4
63.2
69.0
75.1
82.1
88.0
94.3
101.6
108.5
115.7
125.0

9.7
10.4
11.2
11.8
12.3
12.8
14.2
16.0
17.9
19.6
21.7
24.3
27.0
29.9
32.3
34.4
36.7
39.3
42.0
45.0

4.0
4.3
4.8
5.2
5.9
6.4
6.8
7.5
8.1
8.5
9.5
10.4
11.2
12.1
12.7
14.2
15.4
16.3
17.4
18.7

1.5
1.5
1.6
1.7
1.8
1.9
2.1
2.3
2.6
2.9
3.3
3.7
4.1
4.5
5.0
5.5
6.1
6.5
7.1
7.6

2.1
2.4
2.7
3.4
3.7
4.0
5.0
5.3
5.8
5.9
6.2
6.8
7.3
8.0
8.2
8.5
8.9
9.4
9.7
10.5

6.9
7.4
8.3
9.3
10.2
10.8
11.7
12.8
14.0
15.3

I960
1961
1962
1963
1964
1965
1966
1967
1968
1969

330.7
341.1
361.9
381.7
409.3
440.7
477.3
503.6
552.5
597.9

43.5
41.9
47.0
51.8
56.8
63.5
68.5
70.6
81.0
86.2

19.7
17.8
21.5
24.4
26.0
29.9
30.3
30.0
36.1
38.4

18.0
18.3
19.3
20.7
23.2
25.1
28.2
30.0
32.9
34.7

153.2
157.4
163.8
169.4
179.7
191.9
208.5
216.9
235.0
252.2

82.7
84.8
87.1
89.5
94.6
101.0
109.0
112.3
121.6
130.5

27.0
27.6
29.0
29.8
32.4
34.1
37.4
39.2
43.2
46.5

12.0
12.0
12.6
13.0
13.6
14.8
16.0
17.1
18.6
20.5

3.8
3.8
3.8
4.0
4.1
4.4
4.7
4.8
4.7
4.6

134.0
141.8
151.1
160.6
172.8
185.4
200.3
216.0
236.4
259.4

48.2
51.2
54.7
58.0
61.4
65.4
69.5
74.1
79.7
86.8

20.3
21.2
22.4
23.6
25.0
26.5
28.2
30.1
32.3
35.0

8.3
8.8
9.4
9.9
10.4
10.9
11.5
12.2
13.0
14.0

11.2
11.7
12.2
12.7
13.4
14.5
15.9
17.3
18.9
20.9

16.4
17.5
19.4
21.0
24.1
25.9
28.3
31.1
35.7
40.9

1970
1971
1972 ...
1973
1974
1975 ...
1976
1977
1978
1979

640.0
691.6
757.6
837.2
916.5
1,012.8
1,129.3
1,257.2
1,403.5
1,566.8

85.7
97.6
111.2
124.7
123.8
135.4
161.5
184.5
205.6
219.0

35.9
44.9
51.5
56.7
50.3
55.8
72.7
85.4
95.1
96.9

35.7
37.8
42.4
47.9
51.5
54.5
60.2
67.1
73.9
82.1

270.3
283.3
305.1
339.6
380.9
416.2
452.0
490.4
541.8
613.2

142.1 47.8
147.5 51.7
158.5 56.4
176.1 62.5
198.2 66.0
218.7 70.8
236.2 76.6
255.9 84.1
282.2 94.8
317.3 102.2

21.9
23.2
24.4
28.1
36.1
39.7
43.0
46.9
51.3
66.1

4.4
4.6
5.1
6.3
7.8
8.4
10.1
11.1
12.0
15.8

284.0
310.7
341.3
373.0
411.9
461.2
515.9
582.3
656.1
734.6

94.0 37.7
102.7 40.9
112.1 45.2
123.1 49.6
135.1 55.4
148.4
63.5
163.5 72.3
182.4
81.7
205.2 90.9
231.1 100.3

15.2
16.6
18.4
20.0
23.5
28.5
32.5
37.6
42.1
46.8

23.7 46.1
27.1 51.8
29.8 57.8
31.2 64.4
33.3 72.4
35.7 84.2
41.3 95.9
49.2 111.5
53.5 125.1
59.0 141.4

1980
1981
1982
1983
1984

1,732.6
1,915.1
2,050.7
2,234.5
2,430.5
2,629.0
2,807.5
3,012.1
2,117.0
2,315.8
2,493.4
2,700.4

219.3
239.9
252.7
289.1
335.5
372.2
406.5
421.9
263.8
310.0
346.7
373.2

90.3
100.5
108.9
130.4
157.4
179.1
196.4
195.8
115.7
144.4
162.3
173.8

86.2
92.7
95.7
107.1
118.8
129.9
140.0
148.3
99.1
112.4
122,7
134.7

681.4
740.6
771.0
816.7
867.3
911.2
943.6
997.9
786.6
837.9
879.6
932.7

349.1
376.5
398.8
421.9
448.5
471.6
501.0
526.4
407.0
430.8
456.1
482.5

109.0
119.9
124.4
135.1
146.7
156.4
167.0
178.2
126.5
141.1
149.8
160.6

83.7
92.7
89.1
90.2
90.0
90.6
73.3
77.0
89.8
91.9
89.0
91.0

18.0
19.4
18.6
17.5
17.8
18.5
16.7
16.2
18.2
18.1
16.8
19.7

831.9
934.7
1,027.0
1,128.7
1,227.6
1,345.6
1,457.3
1,592.3
1,066.5
1,167.9
1,267.1
1,394.5

261.5
295.6
321.1
344.1
371.3
403.0
434.3
467.7
330.3
353.8
382.2
416.2

113.9
127.5
143.4
156.0
166.9
175.3
179.9
186.3
148.0
161.4
169.3
179.0

56.4 64.5 164.2
63.5 68.3 193.5
72.8 69.7 217.8
80.0 74.8 238.3
84.8 82.0 265.3
88.9 89.8 291.5
87.4 95.8 320.1
88.8 106.2 360.3
74.8 71.1 226.9
84.1 77.6 246.9
86.3 84.5 275.3
90.2 92.1 304.3

1986:1

II
Ill
IV

2,739.0
2,772.1
2,842.8
2,876.0

381.4
393.0
429.9
421.8

179.4
187.7
217.5
201.0

135,9
138.8
142.0
143.3

938.4
937.2
944.7
954.1

490.3
498.0
503.2
512.6

163.0
167.0
168.7
169.4

86.3
71.7
68.9
66.3

18.2
16.7
16.2
15.7

1,419.2
1,441.9
1,468.2
1,500.1

422.6
430.4
438.1
446.3

177.1
180.2
181.5
180.7

86.8
88.1
87.9
86.7

94.0
94.5
96.2
98.6

309.3
314.9
323.2
333.0

1987:1
II
Ill
IV

2,921.7
2,992.2
3,058.2
3,076.3

403.5
420.5
441.4
422.0

181.7
194.5
212.9
194.0

145.9 977.5 521.0
147.8 995.3 525.3
150.2 1,006.6 528.4
149.4 1,012.4 530.9

174.5
176.8
180.4
181.2

72.1
77.4
79.3
79.3

15.7
16.3
16.0
16.6

1,540.7
1,576.4
1,610.2
1,641.9

455.4
462.6
471.1
481.8

180.0
187.3
189.6
188.2

84.9
90.6
90.8
88.8

102.1
104.6
105.8
112.0

344.0
355.7
367.3
374.4

1988:1
||
III

3,128,1 437.8 202.2 154.7 1,016.2 535.9 180.5
3,194.6 449.8 208.7 159.5 1,036.6 546.3 183.2
3,261.2 452.9 210.2 159.5 1,060.8 558.9 188.4

76.3
78.8
80.5

17.0 1,674.1 490.1 190.9
17.2 1,708.2 496.4 193.5
17.4 1,747.5 506.0 199.7

1987
1982: IV
1983: IV
1984: IV
1985- IV

1
Includes
z

other items not shown separately.
Includes imputed rental value of owner-occupied housing.
Source: Department of Commerce, Bureau of Economic Analysis.




324

2.2
2.4
2.7
2.9
3.3
3.6
4.6
5.6
6.3
6.5

90.2 111.3 384.9
90.9 116.4 396.6
94.6 118.5 410.4

TABLE B-15.—Personal consumption expenditures in 1982 dollars, 1940-88
[Billions of 1982 dollars; quarterly data at seasonally adjusted annual rates]
Durable goods
Year or
quarter

Nondurable goods

FurniPersonal
conMotor ture
sumption
vehi- and
expendi- Total > cles house- Total *
tures
and hold
parts equip^
ment

Food

Cloth- Gasoing
line
and and
shoes oil

Services
Fuel
oil
and
coal

Household
operation
Total1 Housing 2

Total

l

Electricity
and
gas

Transportation

Medical
care

502.6
531.1
527.6
539.9
557.1
592.7
655.0
666.6
681.8
695.4

40.6
46.2
31.3
28.1
26.3
28.7
47.8
56.5
61.7
67.8

18.6
20.6
8.4
7.7
7.1
7.4
15.2
21.8
25.5
32.7

17.6
20.4
17.4
14.0
12.4
13.7
22.9
25.7
27.1
26.4

259.4
275.6
279.1
284.7
297.9
323.5
344.2
337.4
338.7
342.3

150.6
158.3
161.8
166.3
178.5
193.0
202.2
193.9
191.5
193.6

36.3
38.9
40.3
43.0
41.7
43.4
44.7
42.5
42.7
43.0

17.2
19.2
14.5
9.2
9.5
12.5
22.7
24.1
25.7
27.9

23.8
24.6
25.3
25.7
25.5
27.2
29.2
30.8
31.0
27.3

202.7
209.3
217.2
227.2
232.9
240.5
262.9
272.6
281.4
285.3

53.6
56.0
58.1
59.8
61.9
62.6
67.2
72.8
76.5
•80.9

32.4
32.0
33.4
31.2
31.5
32.4
35.1
37.6
39.0
40.1

7.1
7.3
7.9
8.2
8.6
9.2
10.3
11.7
12.8
13.7

17.7
19.7
21.9
26.9
29.2
31.0
35.9
35.3
35.1
33.2

21.6
22.4
23.7
24.1
25.9
26.5
31.1
33.8
36.7
37.8

733.2
748.7
771.4
802.5
822.7
873.8
899.8
919.7
932.9
979.4

80.7
74.7
73.0
80.2
81.5
96.9
92.8
92.4
86.9
96.9

41.3
36.3
34.1
39.9
40.6
51.5
45.3
45.8
40.8
47.4

30.1
28.9
28.9
29.9
30.1
33.7
34.9
33.7
33.2
35.5

352.8
362.9
376.6
388.2
393.8
413.2
426.9
434.7
439.9
455.8

196.6
202.5
209.8
217.7
222.0
231.3
238.8
243.5
243.5
252.1

44.3
43.7
45.8
46.2
46.2
48.6
49.7
49.3
49.9
52.3

29.0
31.5
34.1
36.0
37.1
40.3
42.8
44.4
46.5
48.9

29.4
29.3
28.5
27.6
28.1
29.9
29.9
29.7
30.8
29.4

299.8
311.1
321.9
334.1
347.4
363.6
380.1
392.6
406.1
426.7

86.1
91.9
97.5
102.5
107.1
112.1
117.1
122.6
127.7
133.6

43.8
46.2
47.0
48.9
50.5
55.5
59.3
61.2
63.3
65.7

15.6
17.6
19.0
20.4
22.4
24.2
26.4
28.0
29.5
31.2

32.4
33.2
33.4
34.2
33.3
34.2
35.6
36.2
35.4
36.8

40.1
42.0
44.2
46.6
49.5
51.0
53.9
56.8
60.5
64.0

1960
1961
1962
1963
1964
1965
1966
1967. . .
1968
1969..

1,005.1
1,025.2
1,069.0
1,108.4
1,170.6
1,236.4
1,298.9
1,337.7
1,405.9
1,456.7

98.0
93.6
103.0
111.8
120.8
134.6
144.4
146.2
161.6
167.8

49.2
44.6
51.0
56.4
59.0
67.5
68.5
67.4
77.3
80.4

34.9
35.3
37.4
39.9
44.7
48.5
53.8
55.8
59.2
60.9

463.3
470.1
484.2
494.3
517.5
543.2
569.3
579.2
602.4
617.2

255.5
259.7
263.7
266.5
277.2
290.4
299.4
304.0
317.0
324.3

52.7
53.7
56.0
56.9
61.5
64.0
68.3
68.8
71.7
73.0

50.7
51.0
53.2
54.7
57.4
60.2
63.9
66.0
70.6
75.2

28.5
26.7
26.7
28.0
29.5
31.0
31.8
31.8
30.1
28.6

443.9
461.4
481.8
502.3
532.3
558.5
585.3
612.3
641.8
671.7

139.8
145.7
153.0
159.4
166.1
174.4
181.7
189.3
197.9
207.6

68.7
70.9
74.4
77.0
80.5
83.9
87.7
91.9
95.1
99.3

32.9
34.6
37.1
38.8
40.8
42.7
44.9
47.4
49:7
52.4

37.9 66.5
38.2 69.1
39.6 74.3
41.2 79.1
43.4 88.0
45.5 91.4
48.3 95.2
51.4 98.3
54.7 105.2
58.1 113.6

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

1,492.0
1,538.8
1,621.9
1,689.6
1,674.0
1,711.9
1,803.9
1,883.9
1,961.0
2,004.4

162.5
178.3
200.4
220.3
204.9
205.6
232.3
253.9
267.4
266.5

73.5
86.4
98.3
106.7
90.3
91.1
109.6
121.2
125.9
119.4

61.1
63.5
70.2
77.9
78.2
75.9
80.6
87.3
92.3
97.1

632.5
640.3
665.5
683.2
666.1
676.5
708.8
731.4
753.7
766.6

334.5 72.0 79.9
335.9 75.3 83.6
344.2 80.3 87.0
340.8 86.0 91.7
336.6 84.9 87.2
346.4 88.1 89.8
363.6 92.2 93.4
377.1 97.4 96.4
379.6 107.1 100.9
387.5 112.1 97.1

26.7
25.9
28.6
30.9
24.3
24.2
27.0
26.1
26.9
26.2

697.0
720.2
756.0
786.1
803.1
829.8
862.8
898.5
939.8
971.2

216.1
224.5
235.5
246.5
258.6
265.7
273.2
279.6
292.8
304.1

102.2 54.4
103.6 55.8
108.6 58.5
112.6 '59.8
112.8 60.2
117.5 63.3
122.3 65.5
128.2 68.1
134.0 70.7
138.3 71.1

59.8
62.1
66.0
67.8
68.4
69.4
72.6
77.8
80.2
82.9

120.4
128.2
136.0
145.4
151.3
159.9
167.8
177.8
184.8
192.2

1980
1981
1982
1983
1984
1985
1986 .
1987

2,000.4
2,024.2
2,050.7
2,146.0
2,249.3
2,354.8
2,455.2
2,521.0

245.9
250.8
252.7
283.1
323.1
355.1
385.0
390.9

103.8
106.3
108.9
126.8
148.0
164.4
176.4
170.4

95.4
96.5
95.7
106.1
118.4
131.0
143.2
151.0

762.6
764.4
771.0
800.2
825.9
847.4
879.5
890.5

394.9
392.5
398.8
414.0
422.8
435.5
448.0
450.4

114.8
122.2
124.4
132.6
142.2
147.2
157.6
160.5

88.4
87.8
89.1
93.2
94.5
94.4
97.3
98.3

21.6
19.2
18.6
18.6
18.5
19.6
22.0
21.1

991.9
1,009.0
1,027.0
1,062.7
1,100.3
1,152.3
1,190.7
1,239.5

312.5
318.9
321.1
325.4
333.0
341.7
348.3
358.3

142.6
142.0
143.4
146.2
148.8
151.6
152.1
157.0

73.1
72.0
72.8
74.2
75.4
77.5
76.6
79.0

77.4
73.3
69.7
71.4
75.9
82.1
85.4
89.3

200.6
212.0
217.8
222.3
232.0
240.9
251.5
268.2

1982: IV
1983: IV
1984: IV
1985: IV

2,078.7
2,191.9
2,281.1
2,386.9

262.0
300.5
333.1
356.4

115.0 98.4
138.1 111.1
151.6 122.7
158.9 136.6

778.6
812.7
831.2
858.3

404.6
418.2
426.2
441.0

126.2
137.4
143.5
149.9

89.7
94.4
94.7
94.5

17.6
19.4
18.0
20.5

1,038.1
1,078.6
1,116.8
1,172.2

322.1
328.2
335.8
344.4

143.1
149.4
148.9
153.9

71.6
76.9
75.7
79.1

69.1
72.6
78.0
83.8

220.7
224.6
235.7
245.2

1986:1
II
Ill
IV

2,415.1
2,440.9
2,478.6
2,486.2

363.3
374.2
405.1
397.3

163.1
169.6
194.3
178.5

138.2
142.2
145.4
147.1

870.4
880.9
881.4
885.3

446.6
450.3
445.6
449.5

154.0
158.8
159.1
158.6

96.7
96.0
98.4
98.1

20.7
21.8
22.7
22.8

1,181.4
1,185.8
1,192.0
1,203.6

345.8
346.9
349.1
351.3

150.6
152.1
152.6
153.2

75.5
76.7
76.9
77.4

84.5
84.6
86.0
86.5

247.7
249.4
252.3
256.6

1987:1
II
Ill
IV

2,490.2
2,516.6
2,545.2
2,531.7

378.3
391.3
406.5
387.6

160.7
169.9
184.2
166.7

148.5
151.0
152.7
151.9

889.9
889.8
891.9
890.5

452.9
450.1
449.4
449.2

160.7
158.2
162.9
160.3

97.3
99.6
97.8
98.4

21.3
21.3
20.4
21.4

1,222.0
1,235.5
1,246.8
1,253.6

355.0
357.1
359.3
361.7

157.7
158.1
159.2
158.1

76.0
80.5
80.5
79.2

87.6
88.9
90.1
90.8

261.4
266.6
270.9
274.0

1988:1
II
Ill

2,559.8 401.1 173.5 157.3
2,579.0 410.6 179.0 161.8
2,603.8 410.4 178.7 161.0

892.7 451.4 159.6
893.6 453.2 156.3
904.5 453.8 164.2

98.8
99.8
99.5

22.0 1,265.9 363.6 160.4
21.8 1,274.8 365.6 161.1
22.4 1,288.9 367.7 165.9

80.5
80.6
83.8

91.7 276.9
92.9 279.5
94.2 283.4

1940.
1941 .
1942
1943..
1944.
1945.
1946..
1947
1948
1949.

.. .
.
.
.
. . .
. .
..
. ..
. . .

1950
1951
1952
1953
1954
1955..
1956
1957
1958
1959

1
Includes
2

other items not shown separately.
Includes imputed rental value of owner-occupied housing.
Source: Department of Commerce, Bureau of Economic Analysis.




325

TABLE B-16.—Gross and net private domestic investment, 1929-88
[Billions of dollars; quarterly data at seasonally adjusted annual rates]

Year or quarter

Gross
private
domestic
investment

Less:
Capital
consumption
allowances
with
capital
consumption
adjustment

16.7
1.6
9.5
13.4
18.3
10.3
6.2
7.7
11.3
31.5
35.0
47.1
36.5
55.1
60.5
53.5
54.9
54.1
69.7
72.7
71.1
63.6
80.2
78.2
77.1
87.6
93.1
99.6
116.2
128.6
125.7
137.0
153.2
148.8
172.5
202.0
238.8
240,8
219.6
277.7
344.1
416.8
454.8
437.0
515.5
447.3
502.3
664.8
643.1
665.9
712.9
409.6
579.8
661.8
654.1
686.6
667.8
653.0
656.4
685.5
698.5
702.8
764.9
763.4
758.1
772.5

9.9
7,6
9.0
9.4
10.3
11.3
11.6
12.0
12.4
14.2
17.6
20.4
22.0
23.6
27.2
29.2
30.9
32.5
34.4
38.1
41.1
42.8
44.6
46.4
47.8
49.4
51.4
53.9
57.4
62.1
67.4
73.9
81.4
88.8
97.5
107.9
118.1
137.5
161.8
179.2
201.5
229.9
265.8
303.8
347.8
383.2
396.6
415.5
437.2
455.9
480.0
393.2
400.8
423.5
446.9
447.8
453.5
457.9
464.4
468.7
477.0
484.6
489.5
498.3
503.2
507.7

1929
1933
1939
1940
1941
1942
1943
1944 ...
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964 ..
1965
1966
1967
1968
1969
1970
1971.
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987 .
1982: IV
1983: IV
1984: IV
1985: IV
1986:1
||
III
IV
l$87:l
II
Ill
IV
1988:1
II.
Ill

Equals: Net private domestic investment
Net fixed investment
Presidential
Total

Total

5.0
-4.5
.1
1.9
3.5
2.7
-4.7
-3.2
-.1
10.9
17.9
22.0
17.6
24.6
23.1
21.3
23.6
23.3
29.6
29.9
28.5
22.3
29.8
28.7
27.0
32.1
35.9
40.3
48.9
52.3
48.0
55.2
62.0
56.9
67.2
83.6
101.1
87.9
63.4
82.4
121.3
158.3
176.1
141.5
143.7
88.7
112.8
181.7
194.5
194.5
193.7
76.3
148.0
193.3
199.9
194.8
194.8
194.4
194.0
179.1
188.8
203.7
203.3
199.8
211.1
215.1

6.7
-6.1
.5
4.1
8.0
-1.0
-5.3
-4.2
1.1
17.3
17.5
26.7
14.5
31.5
33.3
24.4
24.0
21.6
35.3
34.6
29.9
20.8
35.5
31.8
29.4
38.2
41.8
45.7
58.8
66.5
58.3
63.1
71.8
60.0
74.9
94.1
120.7
103.4
57.8
98.4
142.5
186.9
189.1
133.1
167.7
64.1
105.7
249.4
205.9
210.0
233.0
16.4
179.0
238.3
207.1
238.8
214.3
195.1
192.1
216.8
221.5
218.2
275.4
265.1
254.8
264.8

Source: Department of Commerce, Bureau of Economic Analysis.




326

Total

3.3
-3.5
7
.7
2.0
-2.1
-3.1
-1.3
1.7
6.9
10.7
11.8
8.7
10.3
11.6
10.1
11.9
10.2
13.2
15.6
15.9
9.6
12.1
13.4
11.9
14.9
16.0
20.3
29.3'
35.8
32.3
34.2
39.8
36.8
34.5
40.5
56.2
55.8
37.5
40.9
58.6
82.2
98.9
88.9
98.6
65.5
45.8
91.1
102.1
78.2
74.6

Structures

1.8
-1.7
-1.1
-.8
-~U
-2.4
-1.9
-1.0
2.4
1.9
2.5
2.2
2.8
3.9
3.8
4.8
5.0
5.9
7.9
7.9
6.3
6.4
7.3
7.3
8.0
7.9
9.4
13.2
15.2
14.4
15.1
17.4
17.4
16.8
17.4
21.7
22.0
15.6
16.0
17.6
25.0
34.5
39.4
51.7
45.9
25,9
39.3
45.8
28.1
24.4

Producers'
durable
equipment
1.4
-1.8
.4
1.5
2.3
=-.5

~'.5
2.8
4.5
8.7
9.3
6.5
7.5
7.7
6.4
7.1
5.2
7.3
7.7
8.1
3.2
5.7
6.1
4.6
6.9
8.1
10.9
16.1
20.7
18.0
19.0
22.4
19.4
17.7
23.1
34.4
33.7
21.9
24.8
41.0
57.2
64.5
49.5
46.9
19.6
19.9
51.8
56.3
50.0
50.2

Residential

1.7
-1.0
.8
1.2
1.5
-.6
-1.6
-1.9
-1.8
4.0
7.3
10.2
8.9
14.4
11.5
11.2
11.7
13.0
16.4
14.4
12.6
12.7
17.7
15.4
15.1
17.2
19.9
20.0
19.6
16.5
15.7
21.0
22.2
20.1
32.7
43.1
45.0
32.2
25.9
41.6
62.6
76.1
77.2
52.6
45.0
23.2
67.0
90.6
92.4
116.3
119.1

Change in
business
inventories

1.7
-1.6
.4
2.2
4.5
1.8
= .6
-1.0
-1.0
6.4
-.5
4.7
-3.1
6.8
10.2
3.1
-L6
5.7
4.6
1.4
-1.5
5.8
3.1
2.4
6.1
5.8
5.4
9.9
14.2
10.3
7.9
9.8
3.1
7.8
10.5
19.6
15.4
-5.6
16.0
21.3
28.6
13.0
-8.3
24.0
=24.5
-7.1
67.7
11.3
15.5
39.2
-59.9
31,0
45.0
7.2
44.0
19.5

-2.0
37.7
32.7
14.5
72.0
65.3
43.7
49.7

TABLE B-17.—Gross and net private domestic investment in 1982 dollars, 1929-88
[Billions of 1982 dollars; quarterly data at seasonally adjusted annual rates]
Less:

Year or quarter

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982 ..
1983
1984
1985
1986
1987
1982- IV
1983- IV
1984: IV
1985- IV
1986- 1
II
III
IV
1987- 1
H
III
IV
1988- 1
||
III

Gross
private
domestic
investment

139.2
22.7
86.0

Equals: Net private domestic investment

consumption
allowances
with
capital
consumption
adjustment

Net fixed investment

86.8
86.5
84.4
84.9
111.8
86.3
138.8
86.9
76.7
85.7
50.4
84.8
56.4
85.4
76.5
178.1
88.0
91.8
177.9
96.8
208.2
101.7
168.8
106.5
234.9
111.8
235.2
117.0
211.8
122.1
216.6
127.4
212.6
132.6
259.8
138.3
257.8
243.4
143.5
147.7
221.4
151.9
270,3
156.3
260,5
259.1
160.6
165.1
288.6
307.1
170.3
176.3
325.9
183.7
367.0
192.2
390.5
374.4
201.1
209.8
391.8
410.3
219.8
229.8
381.5
239.5
419.3
253.4
465.4
263.6
520.8
276.1
481.3
287.0
383.3
297.3
453.5
521.3 * 309.6
323.7
576.9
341.3
575.2
356.1
509.3
369.7
545.5
383.2
447.3
394.4
504.0
658.4
407.2
426.7
637.0
443.2
643.5
460.8
674.8
390.0
408.8
397.9
577.2
413.5
655.7
435.3
648.0
436.7
678.0
441.2
652.1
445.4
627.6
449.6
616.5
453.8
646.4
458.2
660.1
667.9
463.0
468.2
724.7
472.9
728.9
477.3
715.1
481.9
726.1

Presidential
Total

Total

52.4
-63.8
1.6
26.9
52.5
-10.2
-35.3
-28.4
-8.9
90.1
86.1
111.4
67.1
128.4
123.3
94.8
94.4
85.2
127.2
119.5
99.9
73.7
118.4
104.1
98.4
123.5
136.8
149.6
183.4
198.3
173.4
181.9
190.5
151.8
179.8
212.1
257.1
205.3
96.3
156.2
211.7
253.3
234.0
153.2
175.8
64.1
109.6
251.2
210.3
200.3
214.0
18.8
179.3
242.2
212.7
241.3
210.9
182.2
166.9
192.7
201.9
204.9
256.5
255.9
237.8
244.2

41.6
-53.0
23
12.5
24.7
221
-36.0
-23.3
-.5
62.2
87.1
99.1
76.7
104.2
92.5
84.8
91.7
90.0
110.9
106.5
96.9
77.1
101.9
96.4
91.2
107.3
120.1
133.9
158.1
161.4
144.6
160.9
165.3
143.6
160.2
190.3
217.1
172.0
109.1
134.1
182.6
216.5
218.9
160.1
152.0
88.7
116.0
188.9
201.2
184.9
179.5
78.0
152.3
200.5
205.0
195.6
187.3
179.2
177.4
162.9
174.1
191.8
189.4
190.0
202.4
204.7

Source: Department of Commerce, Bureau of Economic Analysis.




327

Total

26.2
-40.2
-10.1
1.5
12.0
-17.5
-24.4
-10.5
10.5
39.5
52.6
54.3
37.9
43.3
46.9
41.7
47.0
40.4
49.9
54.9
51.7
31.5
38.5
41.4
37.3
46.4
49.2
63.3
90.4
106.3
93.6
96.1
103.1
89.3
76.1
85.3
116.5
106.9
60.8
61.8
85.2
111.6
124.3
101.3
105.5
65.5
50.4
103.3
116.1
80.5
77.7

Structures

16.8
-24.3
-12.0
= 8.5
-3.5
-15.9
-20.7
-15.2
-8.3
15.4
11.7
14.3
12.7
15.7
18.8
18.8
22.9
24.4
27.7
32.5
30.7
24.8
25.0
27.9
28.1
30.3
29.1
34.0
46.2
50.4
45.9
46.7
49.7
46.1
40.4
39.8
46.8
42.5
27.9
27.3
28.7
37.2
44.8
47.2
56.0
45.9
26.2
39.8
41.9
19.2
13.8

Producers'
durable
equipment
9.4
-16.0
1.9
10.0
15.6
16
-3.8
4.7
18.8
24.1
40.9
40.0
25.2
27.6
28.1
22.9
24.1
16.0
22.2
22.4
20.9
6.6
13.6
13.6
9.3
16.0
20.1
29.2
44.2
55.8
47.7
49.3
53.4
43.3
35.7
45.5
69.8
64.4
32.9
34.6
56.5
74.3
79.5
54.1
49.4
19.6
24.1
63.5
74.2
61.3
64.0

Residential

15.4
-12.8
7.8
11.1
12.7
-4.6
-11.5
128
-11.0
22.7
34.5
44.8
38.9
60.9
45.6
43.2
44.7
49.6
60.9
51.6
45.2
45.6
63.4
55.0
53.8
61.0
70.9
70.6
67.7
55.1
50.9
64.8
62.2
54.2
84.1
105.0
100.6
65.1
48.3
72.2
97.4
104.9
94.6
58.7
46.5
23.2
65.6
85.6
' 85.1
104.4
101.8

Change in
business
inventories

10.8
-10.7
3.9
14.4
27.8
12.0
.7
52
-8.4
27.9
-1.0
12.3
-9.7
24.2
30.8
10.0
2.8
-4.8
16.3
12.9
3.0
3.4
16.5
7.7
7.3
16.2
16.6
15.7
25.2
36.9
28.8
21.0
25.1
8.2
19.6
21.8
40.0
33.3
12.8
22.1
29.1
36.8
15.0
-6.9
23.9
24.5
6.4
62.3
9.1
15.4
34.4
-59.3
27.0
41.7
7.7
45.7
23.6
3.0
-10.5
29.8
27.8
13.0
67.1
66.0
35.3
39.5

TABLE B-18.—Inventories and final sales of business, 1946-88
[Billions of dollars, except as noted; seasonally adjusted]
Inventories 1

Inventory-final
sates ratio

Nonfarm
Quarter

Fourth quarter:

1946

1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959 .
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973.
1974
1975
1976
1977
1978
1979
1980
1981
1982.
1983
1984...
1985
1986
1987
1982: IV....
1983- IV
1984: IV..
1985- IV
1986:1
II
III...
IV
1987- 1
||
III
IV
1988: 1
II
III...

Total 2

71.0
80.3
85.6
77.5
96.7
109.4
108.6
109.6
107.3
114.6
123.4
127.0
126.2
131.7
135.5
137.2
143.8
149.6
155.3
169.1
185.2
197.4
211.8
232.4
240.3
257.8
285.6
352.6
423.3
428.8
463.3
505.7
588.2
674.8
739.3
789.0
771.5
787.2
858.2
863.5
863.1
941.5
771.5
787.2
858.2
863.5
858.9
862.5
861.7
863.1
881.4
902.3
914.1
941.5
965.2
992.3
1,015.8

Farm

19.6
21.0
19.3
16.7
22.5
24.9
23.3
22,0
21.2
19.9
19.9
21.2
22.6
22.1
23.3
23.8
25.2
25.7
24.5
28.0
27.4
27.9
29.1
31.8
31.1
35.4
44.3
65.5
62.4
64.3
60.2
59.3
73.7
80.7
84.5
81.6
79.2
79.4
80.9
71.5
66.2
68.8
79.2
79.4
80.9
. 71.5
69.3
70.9
69.5
66.2
66.5
69.9
68.2
68.8
72.6
78.7
81.8

Total 2

51.4
59.3
66.3
60.8
74.2
84.5
85.3
87.6
86.1
94.7
103.5
105.8
103.7
109.6
112.2
113.4
118.6
123.8
130.9
141.0
157.8
169.5
182.6
200.6
209.2
222.4
241.3
287.1
360.9
364.5
403.1
446.4
514.5
594.1
654.8
707.4
692.2
707.8
777.3
792.1
796.9
872.8
692.2
707.8
777.3
792.1
789.6
791.6
792.2
796.9
815.0
832.4
845.9
872.8
892.6
913.6
934.0

Manu- Wholesale
facturing trade

24.6
29.0
32.2
28.6
34.9
43.1
44.0
46.0
43.9
48.3
54.0
54.3
52.7
55.2
56.2
57.2
60.3
62.2
65.9
70.7
80.9
87.5
94.0
103.4
105.8
107.3
113.6
136.1
177.0
177.8
194.9
210.6
238.4
281.1
310.7
330.2
316.1
315.9
343.4
333.5
324.2
346.2
316.1
315.9
343.4
333.5
326.4
325.1
323.7
324.2
327.1
330.8
337.8
346.2
353.4
360.4
366.0

10.4
11.1
12.5
12.5
14.7
15.6
15.6
15.8
16.1
17.6
18.9
19.2
19.3
21.0
21.3
21.8
22.4
23.9
25.2
26.9
30.3
32.7
34.6
37.9
41.7
45.2
50.0
59.4
75.6
76.2
86.1
96.2
113.8
133.7
154.8
164.7
162.2
163.8
177.5
181.0
185.0
201.0
162.2
163.8
177.5
181.0
181,0
182.2
184.7
185.0
189.0
192.7
194.0
201.0
209.3
213.6
219.5

Retail
trade

12.8
14.5
16.6
15.4
19.2
19.7
19.4
20.0
20.2
22.8
23.7
25.0
25.1
26.2
27.5
27.0
28.3
29.6
31.0
33.7
36.2
36.9
40.7
44.5
45.8
52.3
57.7
66.4
74.6
74.7
82.7
93.3
107.8
117.0
122.7
134.0
134.7
148.2
166.7
180.9
186.5
213.7
134.7
148.2
166.7
180.9
185.3
186.2
184.8
186.5
195.2
203.5
205.5
213.7
215.2
221.5
226.7

Final
sales3
Total

Other

3.2
4.1
4.5
3.9
4.9
5.5
5.6
5.2
5.3
5.4
6.2
6.6
6.6
7.2
7.2
7.4
7.5
8.0
8.8
9.8
10.4
12.4
13.3
14.9
16.0
17.6
19.9
25.2
33.7
35.8
39.4
46.3
54.5
62.3
66.7
78.5
79.2
79.9
89.6
96.6
101.3
111.7
79.2
79.9
89.6
96.6
96.8
98.2
99.1
101.3
103.7
105.4
108.5
111.7
114.7
118.1
121.8

15.8
18.4
19.8
19.7
21.8
24.9
26.4
27.5
28.0
30.2
31.9
33.3
34.3
36.2
37.5
39.5
41.8
44.5
47.1
52.1
55.3
58.8
64.8
68.8
72.4
78.9
87.7
96.8
104.6
117.1
128.5
143.9
165.1
183.2
201.1
217.8
229.5
247.0
268.8
290.3
305.4
325.1
229.5
247.0
268.8
290.3
292.7
297.0
302.6
305.4
308.2
315.6
323.3
325.1
330.2
339.5
344.6

4.48
4.36
4.33
3.94
4.44
4.40
4.11
3.98
3.84
3.80
3.87
3.82
3.68
3.64
3.61
3.47
3.44
3.36
3.30
3.24
3.35
3.36
3.27
3.38
3.32
3.27
3.26
3.64
4.05
3.66
3.60
3.51
3.56
3.68
3.68
3.62
3.36
3.19
3.19
2.97
2.83
2.90
3.36
3.19
3.19
2.97
2.93
2.90
2.85
2.83
2.86
2.86
2.83
2.90
2.92
2.92
2.95

Non-

farm 4

3.24
3.22
3.35
3.09
3.41
3.40
3.23
3.18
3.08
3.14
3.24
3.18
3.02
3.03
2.99
2.87
2.84
2.78
2.78
2.70
2.85
2.88
2.82
2.91
2.89
2.82
2.75
2.97
3.45
3.11
3.14
3.10
3.12
3.24
3.26
3.25
3.02
2.87
2.89
2.73
2,61
2.68
3.02
2.87
2.89
2.73
2.70
2.67
2.62
2.61
2.64
2.64
2.62
2.68
2.70
2.69
2.71

1
Inventories at end of quarter. Quarter-to-quarter change calculated from this table is not the current-dollar change in business
inventories (CBI) component of GNP. The former is the difference between two inventory stocks, each valued at their respective end-ofquarter prices. The latter is the change in the physical volume of inventories valued at average prices of the quarter. In addition,
changes calculated from this table are at quarterly rates, whereas CBI is stated at annual rates.
2
Beginning 1959, inventories of construction establishments are included in "other" nonfarm inventories. Prior to 1959, they are
included in total and total nonfarm inventories, but not in the detailed categories shown.
3
Quarterly totals at monthly rates. Business final sales equals final sales less gross product of households and institutions,
government, and rest of the world, and includes a small amount of final sales by farms.
4
Ratio based on total business final sales, which includes a small amount of final sales by farms.
Note.—-The industry classification of inventories is on an establishment basis and is based on the 1972 Standard Industrial
Classification (SIC) beginning 1948 and on the 1942 SIC prior to 1948.
Source: Department of Commerce, Bureau of Economic Analysis.




328

TABLE B-19-—Inventories and final sales of business in 1982 dollars, 1947-88
[Billions of 1982 dollars, except as noted; seasonally adjusted]
Inventories l
Nonfarm

Quarter

Total 2

Farm

Total 2

Manu- Wholesale
facturing trade

Retail
trade

Final
sales 3
Other

Inventory-final
sales ratio
Total

Nonfarm 4

Fourth quarter:

1947

1948
1949

251.3
263.5
253.9

43.3
45.4
44.4

208.0
218.1
209.5

105.1
108.6
102.9

39.9
42.7
42.8

39.6
43.7
42.8

23.5
23.1
21.1

74.8
77.1
77.3

3.36
3.42
3.28

2.78
2.83
2.71

1950
1951
1952
1953
1954
1955
1956
1957
1958
1959

278.1
308.9
318.9
321.6
316.9
333.2
346.1
349.1
345.7
362.2

47.7
51.5
54.6
54.3
55.9
56.0
53.7
54.9
57.3
58.1

230.4
257.4
264.3
267.4
260.9
277.1
292.4
294.2
288.4
304.2

109.8
133.2
139.0
142.7
135.0
142.5
153.2
152.1
146,8
153.5

47.6
49.0
50.0
50.4
51.1
54.8
56.6
56.0
56.0
60.7

49.5
49.6
49.6
50.8
51.2
57.1
57.8
59.8
59.4
61.9

23.4
25.6
25.8
23.5
23.6
22.7
24.8
26.3
26.3
28.1

82.6
90.4
93.9
98.0
97.7
102.5
104.7
105.9
107.7
111.4

3.37
3.42
3.40
3.28
3.24
3.25
3.31
3.30
3.21
3.25

2.79
2.85
2.81
2.73
2.67
2.70
2.79
2.78
2.68
2.73

I960
1961
1962
1963
1964
1965
1966
1967
1968
1969

370.0
377.2
393.4
410.1
425.8
451.0
487.9
516.6
537.7
562.8

59.4
60.8
63.5
65.8
64.0
66.3
66.1
67.7
68.2
69.0

310.5
316.5
329.9
344.2
361.8
384.7
421.7
449.0
469.4
493.8

154.7
158.8
167.2
172.6
180.9
191.6
213.6
229.2
239.0
248.5

61.8
63.1
65.0
68.9
72.6
76.5
85.1
90.7
93.5
98.9

65.2
64.2
67.5
70.3
73.4
79.2
84.3
84.2
90.5
96.4

28.8
30.3
30.1
32.4
34.9
37.4
38.7
45.0
46.5
50.0

114.1
118.7
123.4
130.4
136.3
147.7
150.2
156.4
163.7
165.4

3,24
3.18
3.19
3.14
3.12
3.05
3.25
3.30
3.28
3.40

2.72
2.67
2.67
2.64
2.65
2.60
2.81
2.87
2.87
2.98

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

571.1
590.7
612.4
652.5
685.7
673.0
695.1
724.2
761.0
776.0

69.8
73.4
75.9
81.4
81.3
82.6
79.1
77.2
77.8
82.4

501.2
517.3
536.6
571.0
604.5
590.3
616.1
647.0
683.2
693.6

248.3
246.1
251.7
267.9
288.5
281.9
294.0
301.9
314.1
324.7

105.8
110.7
114.0
118.4
128.4
124.0
131.2
140.5
151.6
156.1

96.6
107.2
114.0
122.1
121.1
115.9
122.3
130.9
139.1
136.7

50.5
53.2
56.9
62.6
66.4
68.6
68.5
73.7
78.4
76.1

166.8
172.6
185.4
188.9
184.3
191.5
199.3
209.0
221.5
225.6

3.42
3.42
3.30
3.45
3.72
3.51
3.49
3.47
3.44
3.44

3.00
3.00
2.89
3.02
3.28
3.08
3.09
3.10
3.08
3.08

769.1
793.0
768.4
762.0
824.2
833.3
848.8
883.2

77.8
82.6
81.2
74.9
79.4
75.2
72.6
70.2

691.4
710.3
687.2
687.2
744.8
758.2
776.1
813.0

326.8 .
330.3
315.2
309.3
330.0
320.6
317.1
322.3

161.6
165.0
161.5
157.9
171.0
174.3
181.4
187.2

130.4
135.5
132.9
142.4
157.8
169.1
172.2
191.3

72.7
79.5
77.6
77.5
86.0
94.1
105.4
112.1

225.3
224.6
226.1
235.5
248.4
261.2
268.8
277.2

3.41
3.53
3.40
3.24
3.32
3.19

i:il

3.07
3.16
3.04
2.92
3.00
2.90
2.89
2.93

768.4
762.0
824.2
833.3

81.2
74.9
79.4
75.2

687.2
687.2
744.8
758.2

315.2
309.3
330.0
320.6

161.5
157.9
171.0
174.3

132.9
142.4
157.8
169.1

77.6
77.5
86.0
94.1

226.1
235.5
248.4
261.2

3.40
3.24
3.32
3.19

3.04
2.92
3.00
2.90

1986:1
II
Ill
IV

844.8
850.7
851.4
848.8

75.8
76.1
75.6
72.6

769.0
774.5
775.8
776.1

320.3
321.0
318.5
317.1

177.8
179.1
182.3
181.4

173.8
173.8
171.6
172.2

97.0
100.7
103.5
105.4

262.7
264.3
266.4
268.8

3.22
3.22
3.20
3.16

2.93
2.93
2,91
2.89

1987- 1
II
Ill
IV

856.2
863.2
866.4
883.2

71.1
71.8
70.5
70.2

785.1
791.4
796.0
813.0

317.0
316.0
318.7
322.3

183.0
183.2
182.4
187.2

178.5
184.3
185.1
191.3

106.7
107.8
109.8
112.1

268.7
272.8
277.3
277.2

3.19
3.16
3.12
3.19

2.92
2.90
2.87
2.93

1988:1
II
Ill

899.7
908.5
918.4

73.7
75.0
74.8

826.0
833.5
843.6

326.3
327.7
329.1

193.4
193.1
195.9

191.7
195.1
198.1

114.6
117.5
120.5

280.4
285.3
286.3

3.21
3.18
3.21

2.95
2.92
2.95

.

1980
1981
1982
1983
1984
1985
1986
1987
1982: IV
1983: IV.
1984: IV
1985- IV

,

1
Inventories at end of quarter. Quarter-to-quarter changes calculated from this table are at quarterly rates, whereas the constantdollar change in business inventories component of GNP is stated at annual rates.
2
Beginning 1959, inventories of construction establishments are included in "other" nonfarm inventories. Prior to 1959, they are
included in total and total nonfarm inventories, but not in the detailed categories shown.
3
Quarterly totals at monthly rates. Business final sales equals final sales less gross product of households and institutions,
government, and rest of world, and includes a small amount of final sales by farms.
4
Ratio based on total business final sales, which includes a small amount of final sales by farms.
Note.—The industry classification of inventories is on an establishment basis and is based on the 1972 Standard Industrial
Classification (SIC) beginning 1948 and on the 1942 SIC prior to 1948.
Source: Department of Commerce, Bureau of Economic Analysis.




329

TABLE B-20.—Foreign transactions in the national income and product accounts, 1929-88
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Payments to foreigners

Receipts from foreigners

Yeauor quarter

Exports of goods and
services
Total
Total

Merchandise

Services

Capital
grants
received
by the
United
States
(net)

Imports of goods and
services
Total
Total

Merchandise

Services

Transfer payments
(net)
Total

From
persons
(net)

From
government
(net)

Interest
paid by
government to
foreigners

Net
foreign
investment

7.1
2.4
4.6

7.1
2.4
4.6

5.3
1.7
3.3

1.7
.7
1.3

7.1
2.4
4.6

5.9
2.1
3.4

4.5
1.5
2.4

1.5
.6
1.0

0.4
.2
.2

0.3
.2
.2

0.0
.0
.0

0.0
.0
.0

0.8
.2
1.0

1940
1941
1942
1943
1944
1945
1946
1947
1948
1949 .

5.4
61
5.0
4.6
5.5
7.4
15.2
20.3
17.5
16.4

5.4
61
5.0
4.6
5.5
7.4
15.2
20.3
17.5
16.4

4.1
45
3.4
2.9
3.6
5.4
11.8
16.1
13.3
12.2

1.3
16
1,6
1.7
1.9
2.1
3.4
4.2
4.3
4.1

5.4
6.1
5.0
4.6
5.5
7.4
15.2
20.3
17.5
16,4

3.7
4.7
4.8
6.5
7.2
7.9
7.3
8.3
10.6
9.8

2.7
3.4
2.7
3.4
3.8
3.9
5.1
6.0
7.6
6.9

1.0
1.3
2.1
3.1
3.4
4.0
2.3
2.4
3.0
2.9

.2
.2
.2
.2
.3
.8
2.9
2.6
4.5
5.6

.2
.2
.1
.2
.4
.5
.7
.7
.7
.5

.0
.0
.1
— 1
— 1
A
2.3
2.0
3.9
5.1

.0
.0
.0
.0
.0
.0
.0
.0
.0
.0

1.5
1.3
-.1
-2.1
= 2.0
= 1.3
4.9
9.3
2.4
.9

1950
1951
1952
1953
1954
1955
1956
1957
1958
1959

14.5
19.8
19.2
18.1
18.8
21.1
25.2
282
24.4
25.0

14.5
19.8
19.2
18.1
18.8
21.1
25.2
282
24.4
25.0

10.2
14.2
13.4
12.4
12.9
14.4
17.6
196
16.4
16.5

4.3
5.5
5.8
5.7
5.9
6.7
7.6
87
8.0
8.5

14.5
19.8
19.2
18.1
18.8
21.1
25.2
28.2
24.4
25.0

12.3
15.3
16.0
16.8
16.3
18.1
19.9
20.9
21.1
23.5

9.1
11.2
10.8
11.0
10.4
11.5
12.8
13.3
13.0
15.3

3.2
4.1
5.2
5.8
5.9
6.6
7.1
7.6
8.1
8.2

4.0
3.5
2.5
2.5
2.3
2.5
2.4
2.3
2.3
2.3

.4
.4
.4
.5
.5
.4
.5
.5
.4
.4

3.6
3.1
2.1
2.0
1.8
2.1
1.9
1.8
1.8
1.9

.0
.0

-1.8
.9
.6
-1.3
.2
.4
2.8
4.8
.9
= 1.2

29.9
31 1
33.1
35.7
40.5
42.9
46.6
49.5
54.8
60.4

29.9
31 1
33.1
35.7
40.5
42.9
46.6
49.5
54,8
60.4

20.5
209
21.7
23.3
26.7
27.8
30.7
32,2
35.3
38.3

9.4
10 1
11.4
12.3
13.8
15.1
15.8
17.3
19.5
22.1

29.9
31.1
33.1
35.7
40.5
42.9
46.6
49.5
54.8
60.4

24.0
23.9
26.2
27.5
29.6
33.2
39.1
42.1
49.3
54.7

15.2
15.1
16.9
17.7
19.4
22.2
26,3
27.8
33.9
36.8

8.8
8.8
9.3
9.7
10.2
11.0
12.7
14.4
15.4
17.9

2.4
2.7
2.8
2.9
3.0
3.0
3.1
3.3
3.2
3.2

.4
.5
.5
.6
.7
.7
.7
.9
.9
1.0

1.9
2.2
2.3
2.3
2.3
2.3
2.4
2.4
2.3
2.2

'.&
.7
.8

3.2
4,2
3.8
4.9
7.5
6.2
3.8
3.5
1.6
1.7

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

69.8
73.1
82.1
114.1
149.5
161.3
177.7
191.6
227.5
292.4

68.9
72.4
81.4
114.1
151.5
161.3
177.7
191.6
227.5
291.2

44.5 24.4
45.6 26.8
51.7 29.6
73.9 40.2
101.0 50.5
109.6 51.7
117.5 60.2
123.1 68.6
144.7 82.8
183.3 107.9

0.9
.7
.7
0
-2,0
0
0
0
0
1.1

69.8
73.1
82.1
114.1
149.5
161.3
177.7
191.6
227.5
292.4

60.5
66.1
78.2
97.3
135.2
130.3
158.9
189.7
223.4
272.5

40.9
46.6
56.9
71.8
104.5
99.0
124.3
151.9
176.5
211.9

19.6
19.5
21.3
25.5
30.7
31.3
34.6
37.9
46.9
60.5

3.5
3.9
4.1
4.1
4.6
4.9
5.4
5.1
5.6
6.2

1.2
1.2
1.1
1.3
1.0
1.0
1.0
.9
.9
1,0

2.3
2.7
2.9
2.9
3.6
4.0
4.4
4.2
4.7
5.2

1.0
1.8
2.7
3.8
4.3
4.5
4.5
5.5
.8.7
11.1

4.8
1.3
= 2.9
8.8
5.4
21.6
9.0
= 8.7
-10.1
2.6

1980
1981
1982...
1983
1984
1985
1986
1987

352.1
383.9
361.9
352.5
383.5
370.9
378.4
428.0

351.0
382.8
361.9
352.5
383.5
370.9
378.4
428.0

225.1
238.3
214.0
206.1
224.1
220.8
225.0
254.8

125.9
144.5
148.0
146.4
159.4
150.1
153.4
173.3

1.2
1.1
0
0
0
0
0
0

352.1
383.9
361.9
352.5
383.5
370.9
378.4
428.0

318.9
348.9
335.6
358.7
442.4
448.9
482.8
551.1

247.5
266.5
249.5
271.3
334.3
340.9
367.7
413.0

71.4
82.4
86.1
87.3
108.2
108.0
115.1
138.1

7.7
7.5
9.0
9.5
12.3
15.1
15.4
13.5

1.1
1.0
1.3
1.0
1.5
1.7
1.4
1.3

6.5
6.5
7.8
8.5
10.7
13.4
13.9
12.2

12.6
13.0
10.6
16.9
18.3
-1.0
17.8 -33.5
19.8
909
114.4
21.3
22.6 = 142.4
24.1 = 160.6

1982: IV
1983: IV
1984- IV
1985: IV

335.9
364.7
385.7
369.2

335.9
364.7
385.7
369.2

196.3
215.6
228.0
217.7

139.6
149.1
157.7
151.5

0
0
0
0

335.9
364.7
385,7
369.2

321.9
390.5
453.6
472.4

239.9 82.0
298.3 92.2
342.7 110.9
361.4 111.0

10.6
13.4
17.0
16.9

1.1
1.2
1.6
1.4

9.5
12.2
15.5
15.5

18.9 -15,4
18.3 = 57.4
21.2 -106.1
21.5 = 141.6

1986: I

376.9
373.9
377.8
385.2

376.9
373.9
377.8
385.2

222.0
222.0
225.1
231.1

154.9
151.8
152.7
154.1

0
0
0
0

376.9
373.9
377.8
385.2

469.9
475.1
486.9
499.4

357.0
359.0
373.0
382.0

113.0 * 12.0
116.1 16.4
113.9 17.1
117.5 16.1

1.5
1.3
1.3
1.6

10.4
15.1
15.8
14.5

22.5
22.2
22.8
22.9

=-127.4
= 139.8
= 149.0
= 153.3

1987:1

395.3
416.8
440.4
459.7

395.3
416.8
440.4
459.7

232.5
245.1
264.8
276.7

162.8
171.7
175.6
183.0

0
0
0
0

395.3
416.8
440.4
459.7

514.4
539.0
565.6
585.4

390.1
402.3
421.7
438.0

124.3
136.7
143.9
147.4

11.9
12.6
12.0
17.6

1.4
1.4
1.3
1.2

10.6
11.2
10.7
16.4

23.8
23.9
23.9
24.6

-154.8
= 158.6
-161.1
= 167.8

1988:1
||
III

487.8 487.8 300.8 187.0
507.1 507.1 316.9 190.2
536.1 536.1 331.0 205.1

0
0
0

487.8 599.9 441.7 158.2
507.1 597.5 439.4 158.2
536.1 616.0 448.6 167.5

12.7
11.8
13.3

1.2
.8
.8

11.5
11.0
12.5

26.6 = 151.3
26.8 = 129.1
27.8 -121.1

1929
1933
1939

1960
1961
1962 . .
1963
1964
1965
1966 .
1967
1968 ...
1969

II
Ill
IV
II
Ill
IV

.

Source: Department of Commerce, Bureau of Economic Analysis.




330

.1
.1
.1
.1
.2

1
.3

'.3
A
.5

TABLE B-21.—Exports and imports of goods and services in 1982 dollars, 1929-88
[Billions of 1982 dollars; quarterly data at seasonally adjusted annual rates]
Imports of goods and services

Exports of goods and services
Year or
quarter

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960 .
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1982: IV
1983: IV
1984: IV
1985: IV
1986:1
II
III
IV

1987:1

II
Ill
IV

1988:1

II
Ill

Services

Merchandise
Total

42.1
22.7
36.2
40.0
42.0
29.1
25.1
27.3
35.2
69.0
82.3
66.2
65.0
59.2
72.0
70.1
66.9
70.0
76.9
87.9
94.9
82.4
83.7
98.4
100.7
106.9
114.7
128.8
132.0
138.4
143.6
155.7
165.0
178.3
179.2
195.2
242.3
269.1
259.7
274.4
281.6
312.6
356.8
388.9
392.7
361.9
348.1
371.8
367.2
378.4
427.8
336.0
355.5
376.6
367.4
374.5
372.1
379.1
387.8
394.9
416.4
440.9
459.2
486.2
496.9
514.0

Total

Durable
goods

29.7
15.9
26.5
30.5
31.7
19.5
15.2
16.4
24.0
54.1
65.5
49.1
48.4
42.2
51.1
49.0
46.4
48.8
53.2
61.8
66.6
56.6
56.1
68.8
69.1
72.2
77.6
87.7
88.2
94.0
96.5
104.9
110.0
120.6
119.3
131.3
160.6
175.8
171.5
177.5
178.1
196.2
218.2
241.8
238.5
214.0
207.6
223.8
231.6
243.7
280.1
199.1
214.4
231.9
231.9
236.5
238.0
245.9
254.1
254.7
269.4
291.6
304.6
329.0
339.1
345.9

12.3
4.5
13.3
18.9
20.2
13.4
10.5
11.0
12.6
23.1
34.4
24.5
24.1
21.0
23.8
25.3
25.8
26.9
30.3
34.4
37.2
31.0
30.5
37.9
38.0
39.8
42.1
48.2
50.0
53.6
58.8
64.8
69.5
74.3
72.9
80.0
99.3
113.9
112.1
112.9
111.2
121.9
136.6
150.0
143.8
121.9
119.6
132.3
143.7
152.6
177.3
110.8
126.3
138.2
143.8
147.4
151.4
153.7
157.9
158.6
167.9
184.0
198.8
215.4
223.1
229.4

Nondurable
goods
17.5
11.4
13.1
11.6
11.6
6.1
4.8
5.4
11.3
31.0
31.1
24.6
24.2
21.3
27.3
23.7
20.6
21.9
22.9
27.4
29.4
25.6
25.6
30.9
31.1
32.4
35.5
39.5
38.2
40.4
37.7
40.1
40.5
46.3
46.4
51.3
61.3
62.0
59.5
64.7
66.9
74.3
81.6
91.9
94.6
92.1
88.0
91.5
87.9
91.0
102.8
88.3
88.1
93.7
88.2
89.1
86.6
92.2
96.2
96.1
101.5
107.7
105.8
113.6
116.0
116.5

Total

12.3
6.8
9.8
9.4
10.3
9.6
9.8
10.9
11.2
14.9
16.9
17.1
16.7
17.0
20.9
21.2
20.5
21.2
23.7
26.1
28.3
25.8
27.6
29.6
31.6
34.7
37.1
41.1
43.8
44.4
47.1
50.8
55.0
57.6
59.9
64.0
81.7
93.3
88.2
96.8
103.6
116.4
138.6
147.1
154.3
148.0
140.5
148.0
135.6
134.7
147.7
136.9
141.1
144.7
135.4
138.0
134.1
133.2
133.7
140.2
146.9
149.2
154.6
157.1
157.8
168.1

Factor
income •*

Other

7.6
3.7
5.2
4.6
5.2
4.8
4.6
4.9
4.8
5.6
7.2
8.5
8.2
9.1
10.9
11.3
11.0
11.6
13.0
14.1
14.8
13.2
14.0
15.7
16.9
18.5
20.0
21.8
23.2
22.8
23.8
26.3
29.0
29.6
30.5
33.9
46.2
53.5
45.6
49.7
53.5
63.2
86.6
91.4
96.3
91.6
85.0
92.6
80.0
75.8
80.3
83.0
88.2
89.5
79.5
80.7
76.2
74.1
72.3
74.6
78.8
81.0
87.0
86.3
84.5
93.0

4.8
3.1
4.5
4.8
5.1
4.9
5.2
6.0
6.5
9.4
9.7
8.6
8.5
7.9
10.0
9.9
9.5
9.6
10.7
12.0
13.5
12.6
13.5
13.9
14.7
16.2
17.2
19.3
20.6
21.6
23.3
24.5
26.0
28.0
29.4
30.1
35.4
39.8
42.6
47.1
50.1
53.2
52.0
55.7
57.9
56.3
55.5
55.4
55.6
58.9
67.4
53.8
52.9
55.2
55.9
57.3
57.9
59.1
61.4
65.6
68.2
68.2
67.6
70.9
73.3
75.1

Total

37.4
24.2
30.1
31.7
38.2
36.9
48.0
51.1
54.1
42.0
39.9
47.1
46.2
54.6
57.4
63.3
69.7
67.5
76.9
83.6
87.9
92.8
101.9
102.4
103.3
114.4
116.6
122.8
134.7
152.1
160.5
185.3
199.9
208.3
218.9
244.6
273.8
268.4
240.8
285.4
317.1
339.4
353.2
332.0
343.4
335.6
368.1
455.8
471.4
515.9
556.7
324.3
401.6
471.4
492.6
490.2
512.4
530.9
530.2
527.7
542.3
571.6
585.2
595.1
589.5
607.9

Total

29.3
19.2
24.0
25.6
29.4
21.0
25.0
26.5
26.0
30.0
29.3
33.9
33.3
40.9
40.4
41.9
44.6
42.1
48.3
53.6
56.1
58.1
68.0
67.5
69.0
78.9
81.2
86.3
97.0
109.1
113.0
135.7
144.6
150.9
166.2
190.7
218.2
211.8
187.9
229.3
259.4
274.1
277.9
253.6
258.7
249.5
282.2
351.1
367.9
412.3
439,0
242.7
311,6
364.2
387.8
385.8
407.0
429.3
427.0
420.2
425.3
449.5
461.0
463.1
459.1
470.9

1
Factor income exports less factor income imports equals rest-of-the-world product.
Source: Department of Commerce, Bureau of Economic Analysis.




Services

Merchandise

331

Durable
goods

7.4
4.0
6.9
8.8
11.0
6.7
6.5
6.7
6.9
7.8
7.8
9.4
8.9
11.5
11.5
13.0
13.7
11.9
14.7
16.8
17.1
16.9
22.8
21.7
21.1
24.8
26.2
29.0
35.6
44.0
48.0
61.7
65.6
66.8
74.4
84.4
88.9
89.2
72.4
88.5
99.3
113.7
115.7
116.1
126.1
125.3
150.4
201.6
218.7
241.4
260.2
117.1
172.5
211.4
226.8
231.5
240.0
245.6
248.3
249.3
252.5
262.2
276.9
279.1
276.3
283.5

Nondurable
goods
22.0
15.2
17.0
16.8
18.4
14.3
18.5
19.7
19.1
22.2
21.5
24.5
24.4
29.5
28.9
28.9
30.9
30.3
33.5
36.8
39.0
41.3
45.3
45.8
47.9
54.0
55.0
57.4
61.4
65.2
65.0
74.0
79.0
84.1
91.8
106.4
129.4
122.5
115.5
140.8
160.1
160.4
162.2
137.5
132.6
124.2
131.9
149.5
149.3
170.9
178.8
125.6
139.1
152.8
161.0
154.3
166.9
183.7
178.7
170.8
172.8
187.3
184.1
184.1
182.8
187.4

Total

Factor

in-

come '

2.6
8.0
1.3
4.9
2.2
6.1
6.2
2.0
8.8
1.9
1.7
15.8
23.0
1.9
2.1
24.6
2.5
28.2
1.9
12.0
2.1
10.6
2.3
13.1
2.6
13.0
13.6
2.8
17.1
3.1
21.4
2.9
3.1
25.1
25.4
3.3
28.6
3.6
30.0
3.4
3.4
31.8
3.7
34.6
4.0
33.8
34.9
4.6
4.8
34.3
4.6
35.5
35.4
5.1
5.6
36.5
37.7
6.2
7.0
43.0
7.5
47.5
8.6
49.6
12.0
55.2
12.5
57.4
9.8
52.7
10.2
53.9
13.9
55.6
17.7
56.6
16.3
52.9
16.7
56.1
16.1
57.7
21.1
65.3
75.3 . 30.8
35.9
78.4
41.1
84.7
40.5
86.1
37.1
85.8
48.7
104.7
43.1
103.5
45.0
103.7
54.7
117.7
35.1
81.6
39.7
90.1
47.4
107.2
41.9
104.8
44.2
104.5
105.4
47.5
42.6
101.6
45.5
103.2
46.8
107.6
54.2
117.0
57.7
122.2
60.3
124.2
66.8
132.0
66.3
130.4
70.6
137.0

Other

5.4
3.6
4.0
4.1
6.9
14.2
212
22.5
25.7
10.1
8.5
10.8
10.4
10.8
14.0
18.4
21.9
22.1
25.0
26.6
28.4
30.9
29.8
30,3
29.6
30.9
30.3
30.9
31.6
36.0
40.0
41.0
43.2
45.0
42.9
43.7
41.7
38.9
36.6
39.3
41.6
.44.2
44.5
42.4
43.6
45.7
48.7
56.0
60.4
58.7
63.0
46.5
50.3
59.8
62.9
60.3
57.9
59.0
57.7
60.8
62.8
64.4
63.9
65.2
64.2
66.4

TABLE B-22.—Relation of gross national product, net national product, and national income, 1929-88
[Billions of dollars; quarterly data at seasonally adjusted annual rates]

Year or quarter

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956... .
1957
1958
1959
1960
1961. .
1962
1963..
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976....
1977
1978
1979 ..
1980
1981
1982
1983
1984
1985
1986
1987
1982: IV
1983: IV
1984- IV
1985: IV
1986: 1
||
Ill
IV
1987: 1
II
III...
IV
1988- 1
||
III

Gross
national
product

1039
560
91.3
100.4
1255
159.0
1927
211.4
2134
2124
2352
2616
2604
2883
333.4
3516
371.6
3725
405.9
4282
4510
4568
4958
5153
5338
5746
6069
6498
7051
7720
8164
8927
9639
10155
1 1027
1,2128
13593
14728
15984
17828
19905
22497
25082
27320
30526
3 166 0
34057
37722
40149
4*240 3
45267
32125
35458
38518
41079
41804
42076
42684
43046
43918
44842
45680
46628
47245
48238
4909 0

Equals:
Net
national
product

94.0
48.4
82.3
91.1
115.3
147.7
181.1
199.4
201.0
1982
217.6
2412
238.4
264.6
306.2
322.5
340.7
340.0
371.5
390.1
4099
4140
4512
4689
4861
525.2
5555
595,9
6477
709,9
7490
8187
8825
9266
10051
1 104,8
l'241 2
1 3354
1436 6
16036
17890
2'019 8
22424
24281
27048
2 782 8
30091
33568
35776
37844
40467
28193
31450
34283
366l'o
37327
37540
38105
38402
39231
4007 2
40834
41733
42262
4'3205
44013

99
7.6
9.0
9.4
10.3
11.3
11.6
12.0
12.4
142
17.6
204
22.0
23.6
27.2
29.2
30.9
32.5
34.4
38.1
411
428
446
464
478
49.4
514
53.9
574
62.1
674
739
814
88.8
975
107.9
1181
1375
1618
1792
201.5
2299
2658
3038
3478
383 2
3966
4155
4372
4559
4800
3932
4008
4235
4469
4478
4535
4579
4644
4687
4770
4846
4895
4983
5032
5077

Source: Department of Commerce, Bureau of Economic Analysis.




Plus:

Less:

Less:
Capital
consumption
allowances
with
capital
consumption
adjustment

332

Indirect
business
tax and
nontax
liability

71
7.1
9.4
10.1
11.3
11.8
12.8
14.2
15.5
171
18.4
201
213
23.4
25.3
277
29.7
296
32.2
35.0
374
386
417
453
480
51.5
546
58.7
625
652
701
787
863
940
1034
1111
1208
1290
1400
1517
1657
1781
1894
2133
251 5
258 8
2826
3139
3336
3484
3663
2645
294 1
3227
3383
3472
3416
3527
3523
3569
3638
3703
3742
3794
3858
3923

CiihciHiac

Business
transfer
payments

Statistical
discrepancy

0.6

1.5
1.2
1.7
1.4

.5
.4
.5
.5
.5
.5
.6
7
.8
.8
.9
1.0
1.2
1.1
1.2
1.4
15
1.6
18
20
2.0
2.1
2.4
2.7
2.8
3.0
31
34
3.9
4.1
. 4.4
4.9
5.5
58
7.4
79
8.6
93
103
12.1
124
143
160
187
220
25.1
281
152
165
200
23.0
238
246
256
265
272
279
285
290
296
303
31 1

-.7
-1.7
2.7
4.0
.7
1.8
= 13
.8
.8
2.7
1.8
2.6
2.7
1.8
-1.9
-12
-.1
-15
-28
-1.2
.0
-=.6
-1.4
-1.2
2.1
-.4
-1 1
-3.9
-1.1
1.8
-1.6
=4.3
-17
2.5
36
.0
-19
10
4.9
41
1
52
54
48
-13.6
-81
68
25
21
-79
-120
95
136
194
-85
-25
151
64
150
51
-140

less
current
surplus
of
government
enterprises

-0.2

.0
.4
.4
.1
.1
.1
.6

9
-.2

_1

-.3
.1
-.1
-.3
-.5
-.3
.0
.7
7
1.1
1
4
1.7
1.8
1.1
1.7
1.6
2.5
1.6
14
1.9
2.9
2.6
3.7
3.5
12
2.4
10
3.0
3.9
35
5.7
67
87
141
99
72
126
183
154
196
84
53
51
245
50
158
255
138
83
256
186
192
88

Equals:
National
income

84.7
39.4
71.2
79.6
102.8
136.2
169.7
182.6
181.6
180.7
196.6
221.5
215.2
239.8
277.3
291.6
306.6
306.3
336.3
356.3
372.8
375.0
409.2
424.9
439.0
473.3
500.3
537.6
585.2
642.0
677.7
739.1
798.1
832.6
898.1
994.1
1,122.7
1,203.5
1,289.1
1,441.4
1,617.8
1,838.2
2,047.3
2,203.5
2,443.5

25184
2,719.5
30286
32340
3,437.1
3,678.7
2 548 2
28515
30961
3,312.8
3,378.9
34218
3450 9
34966
3,573.0
3,631.8
3,708 0
38020
38508
39288
4,000 7

TABLE B-23.—Relation of national income and personal income, 1929-88
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Le SS:

National
income

Year or quarter

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1982- IV
1983- IV
1984- IV
1985- IV
1986:1

||
Ill
IV
1987- i
||
Ill
IV
1988-1
||
III

...

847
394
712
79.6
1028
136.2
1697
182.6
181 6
180.7
1966
221.5
2152
239.8
2773
291.6
3066
3063
3363
356.3
3728
375.0
4092
4249
4390
473.3
5003
537.6
5852
642.0
6777
7391
798.1
832.6
898.1
9941
1 122.7
1,203.5
1,289.1
1,441.4
1 617.8
18382
2,047.3
2 203.5
24435
2,518.4
2,719.5
30286
32340
3,437.1
3,678.7
25482
2,851.5
3096.1
33128
3,378.9
3421.8
3 450.9
34966
3,573.0
3,631.8
37080
3,802.0
3,850.8
39288
4,000.7

Pit S:

Corporate
profits
with
Wage
inventory
Contribu- accruals
valuation
tions for
Net
less
and
social
capital interest insurance disbursements
consumption
adjustments
96
15
55
88
143
197
240
242
197
17.2
229
30.3
280
349
399
37.5
377
366
47 1
45,7
453
40.3
514
495
503
583
636
70.7
813
86.6
841
907
874
74.7
87 1
1007
1133
101.7
117.6
1452
1748
1972
200.1
1772
1880
150.0
213.7
2669
2823
298.9
3104
1461
248.5
266,9
2914
303.2
297.1
3012
2939
298.3
305.2
3220
316.1
316.2
3265
330.0

47
41
36
33
33
31
27
2.3
22
1.8
23
2.4
26
3.0
35
3.9
44
52
58
6.5
78
9.5
102
113
129
14.6
163
18.2
209
24.3
274
298
346
41.2
46.3
510
596
75.5
83.8
88.8
105.3
1263
158.3
200.9
2481
272.3
281.0
3048
3190
331.9
353.6
2669
290.2
313.1
3227
331.1
334.1
333.3
3293
338.3
348.1
358.3
369.5
373.9
380.6
396.2

0.3
3
22
2.4
28
3.5
46
5.2
63
7.7
6.7
6.0
6.6
7.4
88
9.3
96
106
120
13.5
155
15.9
188
21.9
229
25.4
285
30.1
31.6
40.6
45,5
504
57.9
62.2
68.9
790
97.6
110.5
118.5
134,5
149.8
171.7
197.8
216.5
251.2
269.6
291.0
324.9
3541
378.1
399.1
273.0
299.2
331.5
362.1
372.3
375.3
379.1
385.9
391.5
395.4
400.9
408.6
433.3
440.9
448.4

Source: Department of Commerce, Bureau of Economic Analysis.




333

0.0
0
.0
.0

o

.0
2
-.2
0
.0
.0
.0
.0
.0
1
.0

-.1
0
.0
.0
.0
.0
.0
.0
0
.0
.0
.0
.0
.0
.0
0
.0
.0
.6
.0

-.5

.1

.1
.1

.3
-.2
.0

.1

.0
-.4
.2
-.2
.0
.0
.0
.0
.6
.0
.0
.0
.0
.0
.0
.0
.2
.0
.0
.0

Government
transfer
payments
to
persons

09
15
25
27
26
2.7
25
3.1
56
10.8
112
10.6
117
14.4
116
12.2
131
153
164
17.5
203
24.7
257
27.5
315
32.6
345
36.0
391
43.6
52.3
606
67.5
81.8
97.0
1084
124,1
147.4
185.7

202.8
217.5
234.8
262.8
312.6
355.7
396.2
426.6
437.9
467.8
496.0
520.6
420.2
429.0
443.0
474.5
486.3
492.6
501.0
504.3
511.6
519.9
523.2
527.8
546,7
552.5
557.6

Personal
interest
income

69
55
53
5.3
53
5.2
51
5.2
58
6.6
75
8.0
8.7
9.6
104
11.2
124
137
149
16.6
187
20.3
223
24.9
263
28.9
32.2
35.5
39.6
44.2
48.2
532
60.9
69.3
74.7
80.8
93.3
111.9
122.5
134.1
155.4
182.5
221.5
271.9
335.4
369.7
393.1
444.7
478.0
499.1
527.0
366.2
411.6
464.4
485.9
497.1
502.0
499.4
497.6
507.1
517.9
533.0
550.0
554.2
563.7
581.9

Equals:

Personal Business Personal
dividend transfer
income payments income

58
20
38
4.0
44
4.3
44
4.6
4.6
5.6
6.3
7.0
7.2
8.8
8.5
8.5
8.8
91
10.3
11.1
11.5
11.3
12.2
12.9
133
14.4
15.5
17.3
19.1
19.4
20.2
219
22.4
22.2
22.6
24.1
26.6
28.9
28.7
33.8
38.2
43.0
48.1
52.9
61.3
63.9
68.7
75.5
78.7
82.8
88.6
65.4
71.0
76.8
79.0
81.1
82.8
83.5
83.6
85.3
87.3
89.9
91.9
93.5
95.0
97.3

06
7
5
.4
5
.5
5
.5
.5
.6
.7
.8
'.8
.9
1.0
1.2
11
1.2
1.4
1.5
1.6
1.8
2.0
20
2.1
2.4
2.7
2.8
3.0
3.1
3.4
3.9
4.1
4.4
4.9
5.5
5.8
7.4
7.9
8.6
9.3
10.3
12.1
12.4
14.3
16.0
18.7
22.0
25.1
28.1
15.2
16.5
20.0
23.0
23.8
24.6
25.6
26.5
27.2
27.9
28.5
29.0
29.6
30.3
31.1

843
463
721
776
952
1224
1507
164.5
1700
177.6
1902
209.2
2064
228.1
2565
273.8
2905
2930
3142
337.2
3563
367.1
3907
409.4
4260
453.2
4763
510.2
552.0
600.8
644.5
7072
772.9
831.8
894.0
981.6
1,101.7
1,210.1
1,313.4
1,451.4
1,607.5
1,812.4
2,034.0
2,258.5
2,520.9
2,670.8
2,838.6
3,108.7
3,325.3
3,531.1
3,780.0
2,729.2
2,941.8
3,188.3
3,399.1
3,460.7
3,517.3
3,546.7
3,599.6
3,676.1
3,736.1
3,801.0
3,906.8
3,951.4
4,022.4
4,094.0

TABLE B-24,—National income by type of income, 1929-88
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Proprietors' income with inventory valuation and
capital consumption adjustments

Compensation
of employees
Year or quarter

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950 .. .
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969 . . .
1970
1971 . .. .
1972
1973
1974
1975
1976
1977
1978
1979 . .
1980
1981
1982
1983
1984. . ,
1985
1986
1987..
1982: IV
1983: IV..
1984: IV
1985: IV.. . .
1986- 1
II
Ill
IV

1987:1

II
Ill
IV
1988: I
II
Ill

..

.

National
income 1

84.7
39.4
71.2
79.6
102.8
136.2
169.7
182.6
181.6
180.7
196.6
221.5
215.2
239.8
277.3
291.6
306.6
306.3
336.3
356.3
372.8
375.0
409,2
424.9
439.0
473.3
500.3
537.6
585.2
642.0
677.7
739.1
798.1
832.6
898.1
994.1
1,122.7
1,203.5
1,289.1
1,441.4
1,617.8
1,838.2
2,047.3
2,203.5
2,443.5
2,518.4
2,719.5
3,028.6
3,234.0
3,437.1
3,678.7
2,548.2
2,851.5
3,096.1
3,312.8
3,378.9
3,421.8
3,450.9
3,496.6
3,573.0
3,631.8
3,708.0
3,802.0
3,850.8
3,928.8
4,000.7

Total

Wages
and
salaries

Supplements
to
wages
and
salaries 2

51.1
29.6
48.2
52.2
64.8
85.3
109.6
121.3
123.3
119.6
130.1
142.1
142.0
155.4
181.6
196.3
210.4
209.4
225.9
244.7
257.8
259.8
281.2
296.7
305.6
327.4
345.5
371.0
399.8
443.0
475.5
524.7
578.4
618.3
659.4
726.2
812.8
891.3
948.7
1,057.9
1,176.6
1,329.2
1,491.4
1,638.2
1,807.4
1,907.0
2,020.7
2,213.9
2,367.5
2,507.1
2,683.4
1,931.1
2,092.7
2,272.7
2,426.7
2,461.0
2,483.4
2,518.2
2,565.8
2,608.9
2,652.0
2,702.8
2,769.9
2,816.4
2,874.0
2,933.2

50.5
29.0
46,0
' 49.9
62.1
82.1
105.8
116.7
117.5
112.0
123.1
135.5
134,7
147.2
171.6
185.6
199.0
197.2
212.1
229.0
239.9
241.3
259.8
272.8
280.5
299.3
314.8
337.7
363.7
400.3
428.9
471.9
518.3
551.5
584.5
638.7
708.6
772.2
814.7
899.6
994.0
1,119.6
1,251.9
1,372.0
1,510.4
1,586.1
1,676.2
1,838.8
1,975.2
2,094.0
2,248.4
1,603.7
1,739.4
1,891.1
2,027.4
2,055.8
2,074.0
2,103.3
2,142.8
2,182.9
2,220.6
2,265.3
2,324.8
2,358.7
2,410.0
2,462.0

0.7
.6
2.2
2.3
2.8
3.2
3.8
4.5
5.8
7.6
7.0
6.5
7.3
8.2
10.0
10.7
11.5
12.1
13.8
15.7
17.8
18.5
21.4
23.8
25.1
28.1
30.7
33.2
36.1
42.7
46.6
52.8
60.1
66.8
74.9
87.6
104.2
119.1
134.0
158.3
182.6
209.7
239.5
266.3
297.1
320.9
344.5
375.1
392.4
413.1
435.0
327.4
353.4
381.7
399.3
405.2
409.5
414.8
423.0
426.0
431.3
437.5
445.1
457.7
464.0
471.1

Farm

Total

Proprietors'
income 3

14.4
6.1
5.4
2.5
11.4
4.4
4.4
12.6
6.4
17.1
10.1
23.9
28.8 12.0
30.0
11.9
31.5 12.4
36.3 14.8
35.5
15.1
17.5
40.4
35.9 12.8
38.8 13.6
44.0
16.0
15.0
44.4
43.4
13.0
43.5 12.4
45.4
11.3
11.1
46.9
48.8 11.0
13.1
51.5
10.8
51.7
11.6
52.1
54.3 12.0
12.1
56.6
57,7
11.9
60.5 10.7
65.1 13.0
69.6 14.0
71,1
12.7
75.4
12.8
79.3 14.6
14.7
80.2
86.8 15.5
98.3 19.4
119.0 33.7
118.8
27.5
25.4
125.4
137.7
20.6
152.9
20.5
176.2
27.0
191.9 31.7
180.7
20.5
186.8 30,7
175.5 24.6
190.9 12.4
234.5 30.5
30.2
255.9
286.7 36.4
312.9 43.0
188.3 28.5
207.8 19.3
237.8 '• 28.1
264.2 29.2
273.1
27,6
46.4
294.6
285.0
33.3
294.2 38.4
310.1
46.7
308.9
43.0
35.2
306.8
326.0 47.0
323.9 44.7
328.8 43.4
321.6 30.9

6.3
2.5
4.5
4.5
6.5
10.3
12.2
12.2
12.6
15.2
15.6
18.2
13.5
14.3
16.8
15.9
13.9
13.2
12.1
12.0
11.9
14.0
11.7
12.4
12.8
12,9
12.6
11.4
13.7
14.8
13.6
13.7
15.8
16.0
16.8
21.1
35.6
30.1
29.0
24.6
25.1
32.4
38.0
28.1
39.4
33.9
21.8
39.6
38.9
44.5
50.6
38.0
28.5
37.5
37.8
35.9
54.5
41.3
46.2
54.4
50.7
42.9
54.5
52.2
50.8
37.9

Total

Nonfarm
Capita)
consumption
adjustment

-0.2
.0
-.1
= .1
= .2
-.2
—2
-A
-.5
-.7
-.7
-.7
-.8
-.9
= .9
= .8
= .8
= .9
-.9
-.9
-.9
-.8
-.8
-.8
-.7
-.7
-.7
= .8
= .8
= .9
-1.1
-1.3
-1.3
-1.7
-1.9
-2.6
-3.6
-4.0
-4.6
-5.3
-6.3
-7.6
= 8.7
-9.3
-9.4
-9.2
-8.7
-8.1
-7.6
-9.4
-9.3
-9.3
-8.6
-8.3
-8.2
-8.0
-7.9
-7.7
-7.7
-7.7
-7.5
—7 5
-/3
-7.0

Total

8.3
2.9
7.1
8.2
10.8
13.8
16.8
18.1
19.1
21.5
20.4
22.9
23.1
25.2
28.0
29.4
30.4
31.1
34.0
35.8
37.8
38.5
40.9
40.5
42.3
44.4
45.7
49.8
52.1
55.5
58.4
62.6
64.7
65.4
71.4
79.0
85.3
91.3
100.0
117.1
132.4
149.2
160.1
160,1
156.1
150.9
178.4
204.0
225.6
250.3
270.0
159.8
188.6
209.7
235.0
245.5
248.3
251.7
255.8
263.5
265.9
271.5
279.0
279.2
285.3
290.7

Proprietors'
income

8.8
3.9
7.6
8.6
11.7
14.4
17.1
18.3
19.3
23.3
21.8
23.1
22.2
25.7
21.1
28.5
29.8
30.4
33.5
35.4
37.2
37.7
40.1
39.7
41.7
43.8
45.1
49.1
51.8
55.5
58.4
63.1
65.1
66.0
72.3
79.6
87.2
95.3
102.2
119.6
135.1
152.8
164.0
164.3
155.2
148.5
167.3
182.4
194.6
212.7
233.0
156.9
172.7
182.5
201.1
209.4
210.8
213.0
217,4
224.8
228.6
235,1
243.4
243.7
250.9
256.8

Inven- Capita)
tory
convalua- sumption
tion
adjust- adjustment
ment

0.1
,-.5
-.2
.0
-.6
-.4
-.2
-.1
-.1
-1.7
-1.5
-.4
.5
-1.1
-.3
.2
-.2
.0
—2
-S
-.3
-.1
.0
.0
.0
.0
.0
-.1
-.2
-.2
-.4
-.5
-.5
-.6
-.7
-2.0
-3.8
-1.2
-1.3
-1.3
-2.3
-2.9
-2.9
-1.4

~'.B
-.4
—2

~!i

-1.0
-.6
— 7
'.3
.2
—1

!i

-.4
-.2
-1.0
-1.1
-1.7
-1.2
-1.7
-1.5

-0.6
-.5
-.3
—3
— .2
-!l
-.1
,1
'.5
.6
.6
J
.8
.7
.9
.9
.9
.9
.8
.6
.6
.7
,7
.4
.3
.2
-=.1
.1
.0
= .3
.1
.1
-.3
-•1.0
---1.3
-1.4
-1.4
- 1.0
~ 1.2
2.3
2.9
12.0
22.0
31.2
37.8
38.0
3.5
16.5
26.9
34.2
36.3
37.6
38.6
38.8
38.8
38.2
37.6
37.4
36.6
36.1
35.4

1
National income is the total net income earned in production. It differs from gross national product mainly in that it excludes
depreciation charges and other allowances for business and institutional consumption of durable capital goods and indirect business
taxes. See Table B-22.
2
Consists mainly of employer contributions for social insurance and to private pension, health, and welfare funds.
See next page for continuation of table.




334

TABLE B-24.—National income by type of income, 1929-88—Continued
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Rental income of persons
with capital consumption
adjustment
Year or quarter
Total

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1982 IV
1983 IV
1984- IV
1985: IV
1986:1

||
HI
IV
1987- 1
II
Ill
IV
1988:1

II
Ill

4.9
2.0
2.6
2.7
3.2
4.1
4.6
4.8
5.0
5.8
5.8
6.4
6.7
7.7
8.3
9.4
10.7
11.6
12.0
12.4
13.1
13.9
14,6
15.3
15.8
16.5
17.1
17.3
18.1
18.6
19.6
18.4
18.4
18.2
186
17.9
18.0
161
13.5
11.9
8.2
9.3
5.6
6.6
13.3
13.6
13.2
8.5
9.2
12.4
18.4
15.8
12.4
5.6
7.8
10.6
12.5
13.1
13.4
17.4
17.8
18.1
20.5
20.5
19.1
19.7

Rental Capital
conincome sumption
of
adjustpersons ment

5.6
2.1
3.2
3.3
4.0
5.1
5.7
6.1
6.5
7.5
8.2
9.1
9.4
10.5
11.5
12.7
13.9
14.9
15.3
15.9
16.5
17.3
18.0
18.7
19.1
19.8
20.3
20.5
21.3
22.2
23.5
22.9
24.2
24.6
259
26.5
28.1
289
28.6
28.9
28.8
34.2
35.7
41.4
52.2
54.4
55.0
51.9
54.2
57.4
66.2
56.5
54.3
49.6
54.5
55.1
57.4
58.1
59,0
63.1
65.5
67.1
69.1
69.6
68.0
68.5

= 0.7
1
= .5
-.6
-.8
— 9
-11
-1.3
-1,5
17
-2.4
-2.7
27
= 2.8
32
— 3.3
33
-3.2
33
= 3.5
= 3.5
-3.4
= 3.4
-3.4
-3.3
-3.3
-3.2
-3.2
=3.3
36
-3.9
45
-5.8
64
= 74
-8,6
-10.1
-127
= 15.0
-17.0
-20.6
-24.9
-30.1
-34.8
-38.9
408
418
= 43.3
450
450
-47.8
407
419
-44.0
-46.7
= 44.5
-44.9
-45.0
456
-45.7
-47.7
490
-48.6
-49.1
-49.0
-48.8

Corporate profits with inventory valuation and capital consumption adjustments
Profits with inventory valuation adjustment and without
capital consumption adjustment

Total

9.6
15
5.5
8.8
14.3
19.7
24.0
24.2
19,7
17.2
22.9
30.3
28.0
34.9
39.9
37.5
37.7
36.6
47.1
45.7
45.3
40.3
51.4
49.5
50.3
58.3
63.6
70.7
81.3
86.6
84.1
90.7
87.4
74.7
871
100.7
113.3
1017
117.6
145.2
174.8
197.2
200.1
177.2
188.0
150.0
213.7
266.9
282.3
298.9
310.4
146.1
248.5
266.9
291.4
303.2
297.1
301.2
293.9
298.3
305.2
322.0
316.1
316.2
326.5
330.0

Profits Profits
tax
before
tax liability

10.0
1.0
7.2
10.0
17.9
21.7
25.3
24.2
19.8
24.8
31.8
35.6
29.2
42.9
44.5
39.6
41.2
38.7
49.2
49.6
48.1
41.9
52.6
49.9
49.8
55.1
59.8
66.7
77.4
83,3
80.1
89.1
87.2
76.0
87.3
101.5
127.2
138.9
134.8
170.3
200.4
233.5
257.2
237.1
226.5
169.6
207.6
240.0
224.3
236.4
276.7
164.1
231.5
226.1
235.0
222.5
230.3
240.5
252.1
261.8
273.7
289.4
281.9
286.2
305.9
313.9

10.5
-1.2
6.5
9.8
15.4
20.5
24.5
24.0
19,3
19.6
25.9
33.4
31.1
37.9
43.3
40.6
40.2
38.4
47.5
46.9
46.6
41.6
52.3
49.8
50.1
55.2
59.8
66.2
76.2
81.2
78.6
85.4
81,4
69.5
82.7
94.9
107.1
99.4
123.9
155.3
183.8
208.2
214.1
194.0
202.3
159.2
196.7
234.2
222.6
244.7
258.7
150.7
223.4
224.6
228.4
243.4
242.1
249.2
244.1
247.5
253.6
269.9
263.7
266.8
278.5
284.6

3
With inventory valuation adjustment.
Source: Department of Commerce, Bureau of Economic Analysis.




Capital
Net
Invencontory sumption interest
Profits after tax
valuadjustation
ment
Divi- UndisTotal dends tributed adjustment
profits

Profits
Total

335

1.4
.5
1.4
2.8
7.6
11.4
14.1
12.9
10.7
9.1
11.3
12.4
10.2
17.9
22.6
19.4
20.3
17.6
22.0
22.0
21.4
19.0
23.6
22.7
22.8
24.0
26.2
28.0
30.9
33.7
32.7
39.4
39.7
34.4
37.7
41.9
49.3
51.8
50.9
64.2
73.0
83.5
88.0
84.8
81.1
63.1
77.2
93.9
96.4
106.6
133.8
59.8
88.1
87.0
99.8
99.2
104.9
107.9
114.3
126.3
132.6
140.0
136.2
136.9
143.2
144.8

5,8
8.6
.4
2.0
3.8
5.7
4.0
7.2
4.4
10.3
4.3
10.3
4.4
11.2
4.6
11.3
4.6
9.1
5.6
15.7
6.3
20.5
7.0
23.2
7.2
19.0
8.8
25.0
8.5
21.9
20.2
8.5
8.8
20,9
21.1
9.1
27.2 10.3
27.6 11.1
26.7 11.5
22.9 11.3
28.9 12.2
27.2 12.9
27.1 13.3
31.2 14.4
33.5 15.5
38.7 17.3
46.5 19.1
49.6 19.4
47.5 20.2
49.7 22.0
47.5 22.5
41.7 22.5
49.6 22.9
59.6 24.4
77.9 27.0
87.1 29.7
83.9 29.6
106.0 34.6
127.4 39.5
150.0 44.7
169.2 50.1
152.3 54.7
145.4 63.6
106.5 66.9
130.4 71.5
146.1 79.0
127.8 83.3
129.8 88.2
142.9 95.5
104.3 68.5
143.4 73.9
139.2 80.8
135.2 84.0
123.2 86.2
125.4 88.0
132.6 88.9
137.9 89.8
135.5 91.7
141.1 94.0
149.5 97.0
145.7 99.3
149.4 101.3
162.7 103.1
169.1 105.7

2,8
-1.6
2.0
3.2
5.8
6.0
6.7
6.7
4.5
10.2
14.2
16,2
11.8
16.2
13.4
11.8
12.1
11.9
16.9
16.6
15.2
11.6
16.7
14.3
13.7
16.8
18.0
21.4
27.4
30.2
27.3
27.7
25.0
19.2
26.6
35.2
50.8
57.3
54.3
71.4
87.9
105.2
119.1
97.6
81.8
39.6
58.9
67.0
44.6
41.6
47.4
35.8
69.5
58.4
51.2
37.0
37.4
43.7
48.1
43.8
47.0
52.4
46.4
48.1
59.6
63.4

0.5
-2.1
-.7
-.2
= 2.5
-1.2
= .8
-.3
-.6
-5.3
-5.9
-2.2
1.9
-5.0
-1.2
1.0
-1.0
—3
-1.7
-2.7
-1.5
-.3
-.3
-.2
.3
.0
.1
-.5
= 1.2
-2.1
-1.6
-3.7
-5.9
-6.6
-4.6
=6.6
-20.0
= 39.5
-11.0
-14.9
-16.6
-25.3
-43.2
-43.1
-24.2
-10.4
= 10.9
-5.8
-1.7
8.3
-18.0
-13.4
-8.1
-1.6
=6.6
21.0
11.8
8.7
-8.1
= 14.4
-20.0
= 19.5
-18.2
= 19.4
-27.4
-29.3

-0.9
-.3
= 1.0
-1.1
-1.1
-.8
— 5
'.2
.4
=2.4
=2.9
-3.2
-3.0
-3.0
-3.4
=3.2
=2.5
= 1.8
-.4
-1.2
-1.3
= 1.3
-.8
-.3
.2
3.1
3.8
4.5
5.2
5.4
5.5
5.3
6.1
5.2
4.3
5.8
6.2
2.3
-6.2
-10.1
-9.0
-10.9
-14.0
-16.8
-14.4
= 9.2
17.0
32.7
59.7
54.2
51.7
-4.5
25.1
42.3
63.0
59.8
55.0
52.0
49.8
50.8
51.5
52.1
52.4
49.4
48.0
45.4

4.7
4.1
3.6
3.3
3.3
3.1
2.7
2.3
2.2
1.8
2.3
2.4
2.6
3.0
3.5
3.9
4.4
5.2
5.8
6.5
7.8
9.5
10.2
11.3
12.9
14.6
16.3
18.2
20.9
24.3
27.4
29.8
34.6
41.2
46.3
51.0
59.6
75.5
83.8
88.8
105.3
126.3
158.3
200.9
248.1
272.3
281.0
304.8
319.0
331.9
353.6
266.9
290.2
313.1
322.7
331.1
334.1
333.3
329.3
338.3
348.1
358.3
369.5
373.9
380.6
396.2

TABLE B-25.—Sources of persona/ income, 1929-88
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Wage and salary disbursements 1

Year or quarter

Personal
income

Commodityproducing
industries

GovernOther
Distrib- Service ment
labor
and
utive indus- govern- income 1
indusment
tries
Manutries
enterfacturing
prises

Total
Total

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955 .
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966 ...
1967
1968
1969
1970
1971 .. .
1972
1973
1974 ..
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1982: IV
1983- IV
1984: IV
1985- IV
1986:1

II
Ill
IV
1987- 1
II
Ill
IV
1988- 1
||
III

84.3
46.3
72.1
77.6
95.2
122.4
150.7
164.5
170.0
177.6
190.2
209.2
206.4
228.1
256.5
273.8
290.5
293.0
314.2
337.2
356.3
367.1
390.7
409.4
426.0
453.2
476.3
510.2
552.0
600.8
644.5
707.2
772.9
831.8
894.0
981.8f
1,101.7
1,210.1
1,313.4
1,451.4
1,607.5
1,812.4
2,034.0
2,258.5
2,520.9
2,670.8
2,838.6
3,108.7
3,325.3
3,531.1
3,780.0
2,729.2
2,941.8
3,188.3
3,399.1
3,460.7
3,517.3
3,546.7
3,599.6
3,676.1
3,736.1
3,801.0
3,906.8
3,951.4
4,022.4
4,094.0

50.5
29.0
46.0
49.9
62.1
82.1
105.6
116.9
117.5
112.0
123.1
135.5
134.8
147.2
171.5
185.6
199.0
197.2
212.1
229.0
239.9
241.3
259.8
272.8
280.5
299.3
314.8
337.7
363.7
400.3
428.9
471.9
518.3
551.5
583.9
638.7
708.7
772.6
814.6
899.5993.9
1,119.3
1,252.1
1,372.0
1,510.3
1,586.1
1,676.6
1,838.6
1,975.4
2,094.0
2,248.4
1,603.6
1,739.4
1,890.5
2,027.4
2,055.8
2,074.0
2,103.3
2,142.8
2,182.9
2,220.6
2,265.1
2,325.1
2,358.7
2,410.0
2,462.0

21.5
9.8
17.4
19.7
27.5
39.1
49.0
50,4
45.9
46.0
54.2
61.1
57.8
64.8
76.4
82.1
89.8
85.8
93.3
100.8
104.4
100.3
109.9
113.4
114.0
122.2
127.4
136.0
146.6
161.6
169.0
184.1
200.4
203.7
209.1
228.2
255.9
276.5
277.1
309.7
346.1
392.3
441.4
470.7
512.2
511.7
523.1
577.6
608.9
625.5
649.8
501.8
545.4
591.6
619.2
622.7
622.0
625.0
632.3
638.2
642.8
652.8
665.5
676.0
689.1
701.3

16.1
7.8
13.6
15,6
21.7
30.9
40.9
42.9
38.2
36.5
42.5
47.1
44.6
50.3
59.4
64.2
71.3
67.6
73.9
79.5
82.5
78.7
86.9
89.8
89.9
96.8
100.7
107.3
115.7
128.2
134.3
146.0
157.7
158.4
160.5
175.6
196.6
211.8
211.6
238.0
266.7
300.1
334.8
355.6
386.7
384.0
397.4
439.1
460.9
473.1
490.3
377.4
415.5
449.5
468.3
471.1
470.6
473.0
477.9
482.7
484.6
492.6
501.3
509.6
517.4
525.9

15.6
8.8
13.3
14.2
16.3
18.0
20.1
22.7
24.8
31.0
35.2
37.5
37.7
39.9
44.4
47.0
49.9
50.3
53.6
58.0
60.7
61.1
65.1
68.6
69.6
73.3
76.8
82.0
87.9
95.1
101.6
110.8
121.7
131.2
140.4
153.3
170.3
186.8
198.1
219.5
242.7
274.6
307.8
335.5
366.8
384.2
404.2
442.8
473.2
498.9
531.7
389.3
420.8
455.1
484.6
490.9
494.0
501.1
509.7
516.6
526.1
536.8
547.3
558.2
572.1
585.8

8.4
5.2
7.1
7.5
8.1
9,0
9.9
10.9
11.9
14.3
16.1
17.9
18,5
19.9
21.6
23.2
25.0
26.2
28.7
31.5
33.8
35.9
38.8
41.7
44.4
47.6
50.7
54.9
59.4
65.3
72.0
80.4
90.6
99.4
107.9
119.7
133.9
148.6
163.4
181.6
202.8
232.9
266.8
305.6
346.9
384.4
425.1.
472.1
521.3
575.9
646.8
398.5
443.2
489.6
543.4
556.8
567.2
580.8
598.7
617.1
634.8
652.4
682.8
687.4
705.9
725.8

5.0
5.2
8.2
8.5
10.2
16.0
26.6
33.0
34.9
20.7
17.5
19.0
20.8
22.6
29.2
33.3
34.4
34.9
36.6
38.8
41.0
44.1
46.0
49.2
52.4
56.3
60.0
64.9
69.9
78.3
86.4
96.6
105.5
117.1
126.5
137.4
148.7
160.9
176.0
188.6
202.3
219.4
236.1
260.2
284.4
305.9
324.3
346.1
372.0
393.7
420.1
314.0
330.0
354.3
380.3
385.4
390.8
396.5
402.2
410.9
416.9
423.0
429.5
437.1
442.9
449.1

0.5
.4
.6
.6
,9
1.1
1.5
1.8
2.0
2.4
2.7
2.9
3.7
4.6
5.2
5.9
6.1
7.0
8.0
9.0
9.4
10.6
11.2
11.8
13.0
14.0
15.7
17.8
19.9
21.7
25.2
28.5
32.5
36.7
43.0
49.2
56.5
65.9
79.3
94.1
107.7
122.7
138.4
150.3
163.6
173.6
182.9
187.6
196.1
207.9
168.0
177.8
185.4
189.7
191.9
194.4
197.5
200.6
203.4
206-4
209.3
212.4
214.6
216.5
219.5

Proprietors' income
with inventory
valuation and
capital
consumption
adjustments
Farm

6.1
2.5
4.4
4.4
6.4
10.1
12.0
11.9
12.4
14.8
15.1
17.5
12.8
13.6
16.0
15.0
13.0
12.4
11.3
11.1
11.0
13,1
10.8
11.6
12.0
12.1
11.9
10.7
13.0
14.0
12.7
12.8
14.6
14.7
15.5
19.4
33.7
27.5
25.4
20.6
20.5
27.0
31.7
20.5
30.7
24,6
12.4
30.5
30.2
36.4
43.0
28.5
19.3
28.1
29.2
27.6
46.4
33.3
38.4
46.7
43.0
35.2
47.0
44.7
43.4
30.9

Nonfarm

8.3
2.9
7.1
8.2
10.8
13,8
16.8
18.1
19.1
21.5
20.4
22,9
23,1
25.2
28.0
29.4
30.4
31.1
34.0
35.8
37.8
38.5
40.9
40.5
42.3
44.4
45.7
49.8
52.1
55.5
58.4
62.6
64,7
65,4
71.4
79.0
85.3
91.3
100.0
117.1
132.4
149.2
160.1
160.1
156.1
150.9
178.4
204.0
225.6
250.3
270.0
159.8
188.6
209.7
235.0
245.5
248.3
251.7
255.8
263.5
265.9
271.5
279.0
279.2
285.3
290.7

1
The total of wage and salary disbursements and other labor income differs from compensation of employees in Table B-24 in that it
excludes employer contributions for social insurance and the excess of wage accruals over wage disbursements.
See next page for continuation of table.




336

TABLE B-25.—Sources of personal income, 2929-88—Continued
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Rental
income
of
persons Personal Personal
with dividend interest
Year or quarter capital
income income
consumption
adjustment

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1982: IV
1983: IV
1984: IV
1985: IV
1986:1

II
HI
IV
1987- 1
t|
II!
IV
1988- 1
II
III

. .

4.9
2.0
2.6
2.7
3.2
4.1
4.6
4.8
5.0
5.8
5.8
6.4
6.7
7.7
8.3
9.4
10.7
11.6
12.0
12.4
13.1
13.9
14.6
15.3
15.8
16.5
17.1
17.3
18.1
18.6
19.6
18.4
18.4
18.2
18.6
17.9
18.0
16.1
13.5
11.9
8.2
9.3
5.6
6.6
13.3
13.6
13.2
8.5
9.2
12.4
18.4
15.8
12.4
5.6
7.8
10.6
12.5
13.1
13.4
17.4
17.8
18.1
20.5
20.5
19.1
19.7

5.8
2.0
3.8
4.0
4.4
4.3
4.4
4.6
4.6
5.6
6.3
7.0
7.2
8.8
8.5
8.5
8.8
9.1
10.3
11.1
11.5
11.3
12.2
12.9
13.3
14.4
15.5
17.3
19.1
19.4
20.2
21.9
22.4
22.2
22.6
24.1
26.6
28.9
28.7
33.8
38.2
43.0
48.1
52.9
61.3
63.9
68.7
75.5
78.7
82.8
88.6
65.4
71.0
76.8
79.0
81.1
82.8
83.5
83.6
85.3
87.3
89.9
91.9
93.5
95.0
97.3

6.9
5.5
5.3
5.3
5.3
5.2
5.1
5.2
5.8
6.6
7.5
8.0
8.7
9.6
10.4
11.2
12.4
13.7
14.9
16.6
18.7
20.3
22.3
24.9
26.3
28.9
32.2
35.5
39.6
44.2
48.2
53.2
60.9
69.3
74.7
80.8
93.3
111.9
122.5
134.1
155.4
182.5
221:5
271.9
335.4
369.7
393.1
444.7
478.0
499.1
527.0
366.2
411.6
464.4
485.9
497.1
502.0
499.4
497.6
507.1
517.9
533.0
550.0
554.2
563.7
581.9

Transfer payments

Total

1.5
21
3.0
3.1
3.1
3.1
3.0
3.6
6.2
11.3
11.7
11.3
12.5
15.2
12.6
13.3
14.3
16.3
17.7
18.9
21.8
26.3
27.4
29,5
33.5
34.7
36.9
38.7
41.9
46,6
55.5
64.0
71.4
85.9
101.5
113.3
129.6
153.2
193.1
210.7
226.1
244.0
273.1
324.7
368.1
410.6
442.6
456.6
489.8
521.1
548.8
435.4
445.5
463.0
497.5
510.0
517.2
526.5
530.8
538.8
547.8
551.7
556.8
576.3
582.8
588.6

Old-age,
Governsurvivors, Government
ment
disability, unememployand
ployment Veterans
ees
health
insur- benefits retireinsurance
ment
ance
benefits
benefits benefits

0.0
.0
.1
.1
.2
.2
.3
.4
.5
.6
.7
1.0
1.9
2.2
3.0
3.6
4.9
5.7
7.3
8.5
10.2
11.1
12.6
14.3
15.2
16.0
18.1
20.8
25.5
30.2
32.9
38.5
44.5
49.6
60.4
70.1
81.4
92.9
104.9
116.2
131.8
154.2
182.0
204.5
221.7
235.7
253.4
269.3
282.9
216.6
227.0
241.7
257.0
264.4
266.8
272.4
273.4
277.9
282.8
284.5
286.5
298.1
300.4
303.1

2

0.4
.5
.4
.4
.1
.1
.4
1.1
.8
.9
1.9
1.5
.9
1.1
1.0
2.2
1.5
1.5
1.9
4.1
2.8
3.0
4.3
3.1
3.0
2.7
2.3
1.9
2.2
2.1
2.2
4.0
5.8
5.7
4.4
6.8
17.6
15.8
12.7
9.7
9.8
16.1
15.9
25.2
26.3
15.8
15.7
16.3
14.7
31.8
20.0
15.6
15.2
15.5
16.3
16.9
16.6
15.7
15.1
14.5
13.4
13.9
13.4
13.4

0.6
.6
.5
.5
.5

0.1
.2
.3
.3
.3

i!o

Aid to
families
with
depend- Other
ent
children
(AFDC)

.4
.5

3.0
7.0
7.0
5.9
5.3
7.7
4.6
4.3
4.1
4.2
4.4
4.4
4.5
4.7
4.6
4.6
5.0
4.7
4.8
4.7
4.9
4.9
5.6
5.9
6.7
7.7
8.8
9.7
10.4
11.8
14.5
14.4
13.8
13.9
14.4
15.0
16.1
16.4
16.6
16.4
16.7
16.7
16.6
16.6
16.5
16.3
16.5
17.0
16.9
16.7
16.5
16.6
16.7
16.6
16.6
17.0
17.1
17.1

'A

'.1
'3
1.0
1.1
1.2
1.4
1.5
1.7
1.9
2.2
2.5
2.8
3.1
3.4
3.7
4.2
4.7
5.2
6.1
6.9
7.6
8.7
10.2
11.8
13.8
16.0
19.0
22.7
26.1
29.0
32.7
36.9
43.0
49.4
54.6
58.7
61.4
66.8
70.6
75.7
56.1
60.2
58.5
67.9
69.1
70.1
71.0
72.1
73.5
75.5
76.7
77.1
80.4
82.3
81.6

0.3
.4
.5
.6
.6
.5
.5
.6
.6
.6
.7
.8
.9
1.0
1.1
1.3
1.4
1.5
1.7
1.9
2.3
2.8
3.5
4.8
6.2
6.9
7.2
7.9
9.2
10.1
10.6
10.7
11.0
12.4
13.0
13.3
14.2
14.8
15.4
16.3
16.7
13.6
14.5
14.8
15.8
16.0
16.3
16.4
16.6
16.6
16.7
16.8
16.8
16.9
17.1
17.2

0.8
1.4
1.7
1.7
1.8
1.8
1.8
2.0
2.0
2.1
2.5
2.9
3.3
3.5
3.6
3.9
4.2
4.2
4.5
4.8
5.2
5.7
6.2
6.7
7.1
7.6
8.3
9.1
9.8
11.2
13.0
15.3
17.3
20.7
24.5
27.6
31.2
37.5
47.6
51.5
55.1
60.9
69.1
84.0
91.8
96.5
105.1
112.6
121.9
131.9
142.1
100.6
107.3
116.1
125.0
127.9
130.8
133.1
135.7
138.5
140.9
142.7
146.5
150.0
152.5
156.2

Less:
Personal
contribu- Nonfarm
tions for personal
income 2
social
insurance

0.1
.2
.6
.7
.8
1.2
1.8
2.2
2.3
2.0
2.1
2.2
2.2
2.9
3.4
3.8
4.0
4.6
5.2
5.8
6.7
6.9
7.9
9.3
9.7
10.3
11.8
12.6
13.3
17.8
20.6
22.9
26.2
27.9
30.7
34.5
42.6
47.9
50.4
55.5
61.2
69.8
81.0
88.6
104.5
112.3
120.1
132.7
149.3
161.1
172.0
113.5
123.6
135.2
152.6
159.0
160.2
161.7
163.5
168.9
170.5
172.7
175.9
190.2
193.5
196.7

159.9
172.0
188.3
190.6
211.2
237.1
255.4
274.2
277.5
299.6
322.8
341.9
350.4
376.2
393.9
409.9
436.7
460.0
494.9
534.0
581.5
626.3
688.7
752.1
810.4
871.8
955.0
1,059.7
1,172.6
1,276.9
1,417.9
1,572.6
1,769.3
1,983.2
2,215.8
2,465.6
2,618.7
2,799.0
3,052.1
3,271.3
3,472.5
3,716.0
2,672.8
2,895.6
3,134.7
3,346.9
3,410.5
3,448.7
3,491.4
3,539.5
3,608.0
3,672.0
3,744.9
3,839.2
3,886.3
3,957.9
4,041.9

Personal income exclusive of the farm component of wages and salaries, other labor income, proprietors' income, and net interest.
Note.—The industry classification of wage and salary disbursements and proprietors' income is on an establishment basis and is
based on the 1972 Standard Industrial Classification (SIC) beginning 1948 and on the 1942 SIC prior to 1948.
Source: Department of Commerce, Bureau of Economic Analysis.




337

TABLE B-26.—Disposition of personal income, 1929-88
[Billions of dollars, except as noted; quarterly data at seasonally adjusted annual rates]
Less: Personal outlays

Year or quarter

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949 ....
1950
1951
1952
1953
1954
1955
1956 ..
1957
1958 .
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970 ....
1971
1972
1973 ...
1974
1975
1976
1977
1978
1979 ....
1980
1981
1982
1983
1984
1985
1986
1987
1982- IV..
1983: IV
1984: IV
1985: IV
1986-1
It..
Ill .
IV
1987:1
||
Ill
IV
1988- 1 ....
H
III

Personal
income

Less:
Equals:
Persona! Disposable
tax and
nontax personal
payments income

84.3
46.3
72.1
77.6
95.2
122.4
150.7
164.5
170.0
177.6
190.2
209.2
206.4
228.1
256.5
273.8
290.5
293.0
314.2
337.2
356.3
367.1
390.7
409.4
426.0
453.2
476.3
510.2
552.0
600.8
644.5
707.2
772.9
831.8
894.0
981.6
1,101.7
1,210.1
1,313.4
1,451.4
- 1,607.5
1,812.4
2,034.0
2,258.5
2,520.9
2,670.8
2,838.6
3,108.7
3,325.3
3,531.1
3,780.0
2,729.2
2,941.8
3,188.3
3,399.1
3,460.7
3,517.3
3,546.7
3,599.6
3,676.1
3,736.1
3,801.0
3,906.8
3,951.4
4,022.4
4,094.0

2.6
1.4
2.4
2.6
3.3
5.9
17.8
18.9
20.3
18.7
21.4
21.0
18.5
20.6
28.9
34.0
35.5
32.5
35.4
39.7
42.4
42.2
46.1
50.5
52.2
57.0
60.5
58.8
65.2
74.9
82.4
97.7
116.3
116.2
117.3
142.0
152.0
171.8
170.6
198.7
228.1
261.1
304.7
340.5
393.3
409.3
410.5
440.2
486.6
511.4
570.3
411.1
413.9
459.7
499.6
495.6
501.0
514.2
534.9
532.2
582.0
576.2
591.0
575.8
601.0
586.5

81.7
44.9
69.7
75.0
91.9
116.4
132.9
145.6
149.2
158.9
168.8
188.1
187.9
207.5
227.6
239.8
255.1
260.5
278.8
297.5
313.9
324.9
344.6
358.9
373.8
396.2
415.8
451.4
486.8
525.9
562.1
609.6
656.7
715.6
776.8
839.6
949.8
1,038.4
1,142.8
1,252.6
1,379.3
1,551.2
1,729.3
1,918.0
2,127.6
2,261.4
2,428.1
2,668.6
2,838.7
3,019.6
3,209.7
2,318.1
2,527.9
2,728.6
2,899.5
2,965.1
3,016.3
3,032.4
3,064.7
3,143.9
3,154.1
3,224.9
3,315.8
3,375.6
3,421.5
3,507.5

Total

Personal Interest
paid by
consumption consumexpendi- ers to
busitures
ness

77.3
45.8
67.0
71.0
80.8
88.6
99.5
108.2
119.6
143.9
161.9
174.9
178.3
192.1
208.1
219.1
232.6
239.8
257.9
270.6
285.3
294.6
316.3
330.7
341.1
361.9
381.7
409.3
440.7
477.3
503.6
552.5
597.9
640.0
691.6
757.6
837.2
916.5
1,012.8
1,129.3
1,257.2
1,403.5
1,566.8
1,732.6
1,915.1
2,050.7
2,234.5
2,430.5
2,629.0
2,807.5
3,012.1
2,117.0
2,315.8
2,493.4
2,700.4
2,739.0
2,772.1
2,842.8
2,876.0
2,921.7
2,992.2
3,058.2
3,076.3
3,128.1
3,194.6
3,261.2

79.2
46.5
67.9
72.0
81.9
89.5
100.2
109.0
120.5
145.3
163.6
177.0
180.6
194.8
211.0
222.4
236.7
244.1
262.8
276.2
291.2
300.6
322.8
338.1
348.9
370.2
391.2
419.9
452.5
489.9
516.9
567.1
614.5
657.9
710.5
778.2
860.8
941.7
1,038.2
1,156.9
1,288.6
1,441.1
1,611.3
1,781.1
1,968.1
2,107.5
2,297.4
2,504.5
2,713.3
2,898.0
3,105.5
2,174.9
2,382.5
2,571.3
2,787.7
2,828.2
2,862.1
2,933.6
2,967.9
3,013.1
3,084.7
3,152.3
3,171.8
3,225.7
3,293.6
3,361.8

Source: Department of Commerce, Bureau of Economic Analysis.




338

1.5
.5
.7
.8
.9
.7
.5
.5
.5
.7
1.0
1.4
1.7
2.3
2.5
2.9
3.6
3.8
4.4
5.1
5,5
5.6
6.1
7.0
7.3
7.8
8.8
9.9
11.1
12.0
12.5
13.8
15.6
16.7
17.7
19.5
22.3
24.1
24.4
26.6
30.5
36.7
43.5
47.4
52.0
55.5
61.9
72.5
82.6
89.1
92.1
56.8
65.5
76.3
85.9
87.7
88.7
89.5
90.4
90.1
91.1
92.8
94.4
96.4
98.2
99.8

Personal
transfer Equals:
pay- Personal
ments
saving
to
foreigners
(net)
0.3
.2
.2
.2
.2
.1
.2
.4
.5
J
.7
.5
.4
.4
.4
.5
.5
.4
.5

'A

.4
.4
.5
.5
.6
.7
.7
.7
.9
.9
1.0
1.2
1.2
1.1
1.3
1.0
1.0
1.0
.9
.9
1.0
1.1
1.0
1.3
1.0
1.5
1.7
1.4
1.3
1.1
1.2
1.6
1.4
1.5
1.3
1.3
1.6
1.4
1.4
1.3
1.2
1.2
.8
.8

2.6
-1.6
1.8
3.0
10.0
27.0
32.7
36.5
28.7
13.6
5.2
11.1
7.4
12.6
16.6
17.4
18.4
16.4
16.0
21.3
22.7
24.3
21.8
20.8
24.9
25.9
24.6
31.5
34.3
36.0
45.1
42.5
42.2
57.7
66.3
61.4
89.0
96.7
104.6
95.8
90.7
110.2
118.1
136.9
159.4
153.9
130.6
164.1
125.4
121.7
104.2
143.1
145.4
157.3
111.7
136.9
154.1
98.8
96.8
130.8
69.5
72.6
144.0
149.9
127.8
145J

Percent of disposable
personal income
Personal outlays

Total

96.8
103.6
97.4
96.0
89.1
76.8
75.4
74.9
80.8
91.4
96.9
94.1
96.1
93.9
92.7
92.7
92.8
93.7
94.2
92.8
92.8
92.5
93.7
94.2
93.4
93.5
94.1
93.0
93.0
93.2
92.0
93.0
93.6
91.9
91.5
92.7
90.6
90.7
90.8
92.4
93.4
92.9
93.2
92.9
92.5
93.2
94.6
93.9
95.6
96.0
96.8
93.8
94.2
94.2
96.1
95.4
94.9
96.7
96.8
95.8
97.8
97.7
95.7
95.6
96.3
95.8

Personal
consump- Personal
saving
tion
expenditures

94.5
102.1
96.2
94.7
87.9
76.1
74,8
74.4
80.2
90.6
95.9
93.0
94.9
92.6
91.4
91.4
91.2
92.0
92.5
90.9
90.9
90.7
91.8
92.1
91.3
91.4
91.8
90.7
90.5
90.8
89.6
90.5
91.0
89.4
89.0
90.2
88.2
88.3
88.6
90.2
91.1
90.5
90.6
90.3
90.0
90.7
92.0
91.1
92.6
93.0
93.8
91.3
91.6
91.4
93.1
92.4
91.9
93.7
93.8
92.9
94.9
94.8
92.8
92.7
93.4
93.0

3.2
^3.6
2.6
4.0
10.9
23.2
24.6
25.1
19.2
8.6
3.1
5.9
3,9
6.1
7.3
7.3
7.2
6.3
5.8
7.2
7.2
7.5
6.3
5.8
6.6
6.5
5.9
7.0
7.0
6.8
8.0
7.0
6.4
8.1
8.5
7.3
9.4
9.3
9.2
7.6
6.6
7.1
6.8
7.1
7.5
6.8
5.4
S.I
4.4
4.0
3.2
6.2
5.8
5.8
3.9
4.6
5.1
3.3
3.2
4.2
2.2
2.3
4.3
4.4
3.7
4.2

TABLE B-27.—Total and per capita disposable personal income and personal consumption expenditures in
current and 1982 dollars, 1929-88
[Quarterly data at seasonally adjusted annual rates, except as noted]

Disposable personal income
Total (biffions of
Per capita
(dollars)
dollars)
1982
Current
1982
Current
dollars dollars dollars dollars

Year or quarter

1929.
1933
1939
1940
1941
1942....
1943
1944
1945
1946
1947
1948
1949
1950 ..
1951
1952
1953
1954
1955
1956
1957....
1958
1959..
I960
1961
1962
1963
1964
1965..
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977.. .
1978
1979
1980
1981
1982
1983
1984
1985...
1986
1987
1982: IV
1983: IV .
1984: IV
1985- IV
1986: 1
tl
f||
IV
1987- 1
|
|
III
IV
1988: 1
|
|
III

81.7
44.9
69.7

... .

*

75.0
91.9
116.4
132.9
145.6
149.2
158.9
168.8
188.1
187.9
207.5
227.6
239.8
255.1
260.5
278.8
297.5
313.9
324.9
344.6
358.9
373.8
396.2
415.8
451.4
486.8
525.9
562.1
609.6
656.7
715.6
776.8
839.6
949.8
1,038.4
1,142.8
1,252.6
1,379.3
1,551.2
1,729.3
1,918.0
2,127.6
2,261.4
2,428.1
2,668.6
2,838.7
3,019.6
3,209.7
2,318.1
2,527.9
2,728.6
2,899.5
2,965.1
3,016.3
3,032.4
3,064.7
3,143.9
3,154.1
3249
,2.
3,315.8
3,375.6
3,421.5
3,507.5

671
498.6
357
370.8
532
499.5
568
530.7
689
604.1
863
693.0
972
721.4
1,052
749.3
1,066
739.5
1,124
723.3
1,171
694.8
1,283
733.1
1,260
733.2
1,368
791.8
1,475
819.0
1,528
844.3
1,599
880.0
1,604
894.0
1,687
944.5
1,769
989.4
1,833
1,012.1
1,865
1,028.8
1,946
1,067.2
1,986
1,091.1
2,034
1,123.2
2,123
1,170.2
2,197
1,207.3
2,352
1,291.0
2,505
1,365.7
1,431.3 , 2,675
2,828
1,493.2
3,037
1,551.3
3,239
1,599.8
3,489
1,668.1
3,740
1,728.4
1,797.4
4,000
4,481
1,916.3
4,855
1,896.6
5,291
1,931.7
5,744
2,001.0
6,262
2,066.6
6,968
2,167.4
7,682
2,212.6
8,421
2,214.3
9,243
2,248.6
9,724
2,261.5
10,340
2,331.9
11,257
2,469.8
11,861
2,542.8
12,496
2609
,4.
13,157
2,686.3
9,929
2,276.1
10,725
2,392.7
11,467
2,496.3
12,068
2,562.8
12,315
2,614.5
12,499
2,655.9
12,534
2,643.9
12,635
2,649.4
12,934
2,679.6
12,947
2,652.8
13,204
2,683.9
13,543
2,728.9
13,760
2,762.3
13,919
2,762.2
14,231
2,800.4

4,091
2,950
3,812
4,017
4,528
5,138
5,276
5,414
5,285
5,115
4,820
5,000
4,915
5,220
5,308
5,379
5,515
5,505
5,714
5,881
5,909
5,908
6,027
6,036
6,113
6,271
6,378
6,727
7,027
7,280
7,513
7,728
7,891
8,134
8,322
8,562
9,042
8,867
8,944
9,175
9,381
9,735
9,829
9,722
9,769
9,725
9,930
10,419
10,625
10,929
11,012
9,749
10,151
10,491
10,667
10,858
11,006
10,928
10,923
11,024
10,889
10,989
11,145
11,260
11,237
11,362

Personal consumption expenditures

Total (billions of
dollars)
1982
Current
dollars dollars

77.3
45.8
67.0
71.0
80.8
88.6
99.5
108.2
119.6
143.9
161.9
174.9
178.3
192.1
208.1
219.1
232.6
239.8
257.9
270.6
285.3
294.6
316.3
330.7
341.1
361.9
381.7
409.3
440.7
477.3
503.6
552.5
597.9
640.0
691.6
757.6
837.2
916.5
1,012.8
1,129.3
1,257.2
1,403.5
1,566.8
1,732.6
1,915.1
2,050.7
2,234.5
2,430.5
2,629.0
2,807.5
3,012.1
2,117.0
2,315.8
2,493.4
2,700.4
2,739.0
2,772.1
2,842.8
2,876.0
2,921.7
2,992.2
3,058.2
3,076.3
3,128.1
3,194.6
3,261.2

471.4
378.7
480.5
502.6
531.1
527.6
539.9
557.1
592.7
655.0
666.6
681.8
695.4
733.2
748.7
771.4
802.5
822.7
873.8
899.8
919.7
932.9
979.4
1,005.1
1,025.2
1,069.0
1,108.4
1,170.6
1,236.4
1,298.9
1,337.7
1,405.9
1,456.7
1,492.0
1,538.8
1,621.9
1,689.6
1,674.0
1,711.9
1,803.9
1,883.8
1,961.0
2,004.4
2,000.4
2,024.2
2,050.7
2,146.0
2,249.3
2,354.8
2,455.2
2,521.0
2,078.7
2,191.9
2,281.1
2,386.9
2,415.1
2,440.9
2,478.6
2,486.2
2,490.2
2,516.6
2,545.2
2,531.7
2,559.8
2,579.0
2,603.8

Per capita
(dollars)
Current
dollars

634
365
511
538
606
657
727
782
855
1,018
1,123
1,193
1,195
1,267
1,349
1,396
1,458
1,477
1,560
1,608
1,666
1,692
1,786
1,829
1,857
1,940
2,017
2,133
2,268
2,428
2,534
2,752
2,949
3,121
3,330
3,609
3,950
4,285
4,689
5,178
5,707
6,304
6,960
7,607
8,320
8,818
9,516
10,253
10,985
11,618
12,347
9,068
9,825
10,479
11,240
11,375
11,487
11,750
11,857
12,020
12,282
12,521
12,564
12,751
12,996
13,232

1982
dollars
3,868
3,013
3,667
3,804
3,981
3,912
3,949
4,026
4,236
4,632
4,625
4,650
4,661
4,834
4,853
4,915
5,029
5,066
5,287
5,349
5,370
5,357
5,531
5,561
5,579
5,729
5,855
6,099
6,362
6,607
6,730
7,003
7,185
7,275
7,409
7,726
7,972
7,826
7,926
8,272
8,551
8,808
8,904
8,783
8,794
8,818
9,139
9,489
9,840
10,160
10,334
8,904
9,299
9,587
9,935
10,030
10,115
10,245
10,250
10,245
10,330
10,421
10,340
10,435
10,492
10,564

Population
(thousands) i

121,878
125,690
131,028
132,122
133,402
134,860
136,739
138,397
139,928
141,389
144,126
146,631
149,188
151,684
154,287
156,954
159,565
162,391
165,275
168,221
171,274
174,141
177,073
180,760
183,742
186,590
189,300
191,927
194,347
196,599
198,752
200,745
202,736
205,089
207,692
209,924
211,939
213,898
215,981
218,086
220,289
222,629
225,106
227,754
230,182
232,549
234,829
237,051
239,322
241,650
243,944
233,466
235,707
237,946
240,257
240,784
241,324
241,936
242,557
243,077
243,618
244,236
244,845
245,318
245,806
246,469

1
Population of the United States including Armed Forces overseas; includes Alaska and Hawaii beginning 1960. Annual data are for
July 1 through 1958 and are averages of quarterly data beginning 1959. Quarterly data are averages for the period.
Source: Department of Commerce (Bureau of Economic Analysis and Bureau of the Census).




339

TABLE B-28.—Gross saving and investment, 1929-88
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Gross investment

Gross saving
Gross private saving
Year or
quarter

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1982: IV
1983: IV
1984- IV
1985- IV .
1986- 1
II
Ill
IV
1987- 1
II
Ill
IV
1988- 1
II
Ill

Total

15.9
6
8.9
13.6
188
10.9
5.8
3.0
5.9
35.7
42.5
50.8
36.5
52.5
58.7
52.3
51.0
51.6
68.4
77.3
77.1
64.5
80.5
84.2
82.6
91.4
98.7
108.5
123.5
130.3
129.5
139.7
158.8
154.7
171.9
200.7
251.9
247.9
238.7
283.0
335.4
408.6
458.4
445.0
522.0
446.4
463.6
568.5
533.5
537.2
560.4
387.4
519.9
557.8
520.3
571.2
537.5
517.7
522.5
539.2
542.4
556.8
603.4
627.0
634.1
665.4

Total

14.9
1.9
11.1
14.3
226

42.3
50.0
54.9
45.4
30.3
28.1
42.4
39.9
44.5
52.6
56.1
58.0
58.8
65.2
72.1
76.1
77.1
82.1
81.1
86.8
95.2
97.9
110.8
123.0
131.6
143.8
145.7
148.9
164.5
190.6
203.4
244.0
254.3
303.6
321.4
354.5
409.0
445.8
478.4
550.5
557.1
592.2
673.5
665.3
681.6
665.3
554.2
632.8
679.9
666,3
702.5
711.8
661.1
651.0
679.8
625.0
642.2
714.1
726.3
711.2
732.9

Personal
saving

Gross
business
saving 1

2.6
-1.6
1.8
3.0
100
27.0
32.7
36.5
28.7
13.6
5.2
11.1
7.4
12.6
16.6
17.4
18.4
16.4
16.0
21.3
22,7
24.3
21.8
20,8
24.9
25.9
24.6
31.5
34.3
36.0
45.1
42.5
42.2
57.7
66.3
61.4
89.0
96.7
104.6
95.8
90.7
110.2
118.1
136.9
159.4
153.9
130.6
164.1
125.4
121.7
104.2
143.1
145.4
157.3
111.7
136.9
154.1
98.8
96.8
130.8
69.5
72.6
144.0
149.9
127.8
145.7

12.3
36
9.3
11.3
126
15.3
17.3
18.4
16.8
16.7
23.0
31.3
32.5
31.8
36.0
38.7
39.6
42.3
49.2
50.8
53.5
52.9
60.3
60.3
62.0
69.3
73.3
79.3
88.7
95.6
98.6
103.3
106.7
106.7
124.3
142.0
155.0
157.6
198.9
225.6
263.8
298.9
327.7
341.5
391.1
403.2
461.6
509.5
539.9
560.0
561.1
411.1
487.3
522.6
554.5
565.6
557.7
562.3
554.3
549.0
555.5
569.6
570.1
576.3
583.3
587.3

Governmer t surplus or deficit Capital
\ na
(i — ;, na :ional income and
grants
proc uct accounts
received
by the
United
State
States
Total
and
Federal
(net) 2
local

1.0
-1.4
-2.2
-.7
38
-31.4
-44.2
-51.8
-39.5
5.4
14.4
8.4
34
8.0
6.1
-3.8
-7.0
-7.1
3.1
5.2
.9
-12.6
-1.6
3.1
-4.3
-3.8
.7
-2.3
.5
-1.3
-14.2
-6.0
9.9
-10.6
-19.5
-3.4
7.9
-4.3
-64.9
-38.4
,= 19.1
-.4
11.5
-34.5
-29.7
1108
-128.6
-105.0
-131.8
-144.4
1049
-166.8
-112.9
-122.1
1459
-131.4
-174.3
-143.5
-128.5
-140.6
-82.6
-85.5
-110.7
-99.2
-77.1
-67.5

1.2
= 13
=2.2
-1.3
51
331
-46.6
-54.5
-42.1
3.5
13.4
8.3
-2.6
9.2
6.5
37
-7.1
-6.0
4.4
6.1
2.3
-10.3
= 1.1
3.0
-3.9
42
!3
-3.3
-L8
-13.2
-6.0
8.4
124
-22'.0
168
=5.6
-11.6
694
-53.5
-46.0
293
-16.1
613
-63^8
-145.9
-176.0
-169.6
-196.9
-205.6
-157.8
2026
-169.2
-187.5
-212.2
1986
-234*.4
-206.1
-183.3
-188.3
-144.0
-138.3
1604
155 1
-133.3
-123.5

=0.2
-.1
.0
.6
13
1.8
2.4
2.7
2.6
1.9
1.0
.1
-1.2
-.4
.0
.1
-1.1
-1.3
-.9
-1.4
= 2.4
-.4
-A
.5
LO
.0
-LI
L5
1.8
2.6
13.5
13.5
7.2
4.5
15.2
26.9
28.9
27.6
26.8
34.1
35.1
47.5
64.6
65.1
61.2
52.9
35.8
56.4
65.4
66.3
67.2
60.1
62.7
54.8
47.7
61.4
52.9
49.7
55.8
56.2
56.0

4

0.9
.7
.7
0
-2.0
.0
0
0
0
1.1
1.2
1.1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

Total

17.4
1.7
10.6
15.0
19.5
10.2
4.1
5.8
10.0
36.4
44.3
49.6
37.3
53.2
61.4
54.2
53.6
54.3
70.2
75.4
75.9
64.5
79.0
81.4
81.3
91.5
98.1
107.1
122.3
132.4
129.2
138.6
154.9
153.6
173.7
199.1
247.6
246.2
241.2
286.6
335.3
406.7
457.4
450.0
526.1
446.3
468.8
573.9
528.7
523.6
552.3
394.2
522.4
555.7
512.4
559.1
527.9
504.0
503.2
530.6
539.9
541.7
597.0
612.0
629.0
651.4

Gross
private
domestic
investment

16.7
1.6
9.5
13.4
18.3
10.3
6.2
7.7
11.3
31.5
35.0
47.1
36.5
55,1
60.5
53.5
54.9
54.1
69.7
72.7
71.1
63.6
80.2
78.2
77.1
87.6
93.1
99.6
116.2
128.6
125.7
137.0
153.2
148.8
172.5
202.0
238.8
240.8
219.6
277.7
344.1
416.8
454.8
437.0
515.5
447.3
502.3
664.8
643.1
665.9
712.9
409.6
579.8
661.8
654.1
686.6
667.8
653.0
656.4
685.5
698.5
702.8
764.9
763.4
758.1
772.5

Net
foreign
investment 3
0.8
LO
1.5
1.3
- '!
!.
-2.0
-1.3
4.9
9.3
2.4
.9
-1.8
.9
.6
-1.3
.2

2^8
4.8
.9
-1.2
3.2
4.2
3.8
4.9
7.5
6.2
3.8
3.5
1.6
1.7
4.8
1.3
-2.9
8.8
5.4
21.6
9.0
-8.7
-10.1
2.6
13.0
10.6
-LO
-33.5
-90,9
-114.4
-142.4
-160.6
-15.4
-57.4
-106.1
-141.6
-127.4
-139.8
-149.0
-153.3
-154.8
-158.6
-161.1
-167.8
-151.3
-129.1
-121.1

Statistical
discrepancy

1.5
1.2
1.7
1.4
.7
-.7
-1.7
2.7
4.0
.7
1.8
-1.3
.8
.8
2.7
1.8
2.6
2.7
1.8
-1.9
-1.2
-.1
-1.5
28
-1.2
,0
-.6
-1.4
-1.2
2.1
-.4
-1.1
-3.9
-1.1
1.8
-1.6
-4.3
-1.7
2.5
3.6
.0
-1.9
-LO
4.9
4.1
1
5.2
5.4
-4.8
-13.6
-8.1
6.8
2.5
-2.1
-7.9
-12.0
-9.5
-13.6
-19.4
-8.5
-2.5
-15,1
-6.4
-15.0
51
-14.0

1
Undistributed corporate profits with inventory valuation and capital consumption adjustments, corporate and noncorporate capital
consumption allowances with capital consumption adjustment, and private wage accruals less disbursements.
2
Allocations of special drawing rights (SORs), except as noted in footnote 4.
3
Net exports of goods and services less net transfers to foreigners and interest paid by government to foreigners plus capital grants
received by the United States, net.
4
In February 1974, the U.S. Government paid to India $2,010 million in rupees under provisions of the Agricultural Trade
Development and Assistance Act. This transaction is being treated as capital grants paid to foreigners, i.e., a -$2.0 billion entry in
capital grants received by the United States, net.
Source: Department of Commerce, Bureau of Economic Analysis.




340

TABLE B-29.—Saving by individuals, 1946-881
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Net investment in 7 Less: Net increase in
debt

Increase in financial assets
Year or
quarter

Total

Check- Timft
able lime
and
depos- savTotal its ings
and decurrency posits

Securities
InsurMoney
ance
market Govern- Corpo- Other and
fund
ment
rate securi- pension
reshares securi- equi- ties*
ties* ties3
serves8

Other
financial
assets8

Mnn

Owner- Conoccu- sumer
pied durahomes bles

6.3
3,4
2,2
2.6

-1.5
.5
1.9
2.1

1.2
1.1
1.0
.7

-0.8
-.7
.1
-.2

5.1
5.4
5.3
5.6

3.7
2.6
2.1
1.6

3.8

2,6 2.5
4.6 4.8
1.6 7,8
1.0 8.2
2.2 9.2
1,2 8.6
1.8 9.5
-.4 12,0
3,8 13.9
.8 11.1

-.2
-.5
3.8
2.3

2
6.9
4.4
2.9
-2.9
8.8

.7
1.8
1.5
1.0
.7
1.1
2.0
1.5
1.8
.6

-.7
.3
.0
.5
-.81
1.0
1.1
.8
1.0
-.2

6.1
6.3
7.7
7.9
7.8
8.5
9.5
9.5
10.4
11.9

2.9
1.6
2.8
2.4
2.0
1.7
3.4
1.9
4.3
1.9

12.1
12.1
11.7
12.7
13.1
17.3
16.2
13.8
12.8
17.0

12.1
18.3
26.1
26.3
26.2
27.9
19.2
35.3
31.0
9.0

2.8
1.0
1.1
-.1
5.1
3,3
10.8
-2.0
4.8
25.8

.0
1.1
-1.4
-1.6
-.3
-1.6
33
-6^2
-2.2

2.3
-.2
-.4
1.3
.3;
.8
2.4
5.2
7.8
10.0

11.5
12.1
13.9
16,4
17.0
19.3
18.8
19.9
21.8

3.7
4.3
2.5
2.1
3.1
3.1
4.1
6.7
5.7
3.9

6.9 24,2
6.7 28.0
48.5
-1.0
8.5 39.9
12.7
43.7
-3.9 71.9
5.7 56.6
15.4
78.6
11.1 95.0
4.1 101.8

3.9
6.2
9.2
8.4
9.3
10.1
16.6
25.4
34.9
38.8

noncorporate
business
assets*

Mnr+
Mort-

ConSR sumer
on

Other
89
non- credit debt
farm
homes

1946
1947
1948
1949

24.9
19.4
25.9
22.2

5.6
19.5
12.5
,1
9.8 -2.9
10.4 -2.0

1950
1951
1952
1953
1954
1955
1956
1957
1958
1959

30.8
35.1
32.3
32.9
27.4
36.6
38.3
37.2
34.7
37.2

13.9
19.0
25.1
23.3
21.3
29.0
31.6
28.0
32.2
34.9

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

38.0
37.0
43.2
47.4
57.8
65.1
73.6
79.5
82.0
72.7

1.0
33.4
35.6 -.9
39.8 -1.2
4.2
46.1
5.3
56.1
7.6
58,1
2.4
58,0
9.9
70.5
74.1 11.1
65.8 -2.5

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

89.4
99.4
119.2
157.4
122.4
162.0
162.9
187.6
200.2
203.0

80.5
105.3
134.9
148.4
149.5
179.3
205.0
250.7
287.1
325.6

8.9
12.3
13.6
13.3
6.5
6.1
15.6
19.7
22.4
35.7

43.2
67.6
73.8
63.3
56.0
77.6
107.1
106.6
99.2
74.7

1980
1981
1982
1983
1984
1985
1986
1987

203.4
246.0
264.7
309.7
372.0
323.3
343.6
354.4

320.3
320.5
380.3
480.4
540.8
543.8
514.2
480,6

8.9
35.2
25.8
34.4
26.7
35J
94.1
16.4

-9.6
27.5
-9.9
24.5
124.9
90.7
46.1 -36.6 -13.8
72.1
32.8 68.9 -11.9 -23.1
118.3
91.7
1.1 -2.6
198.8 -31.1
44.0 112.2 -51.7 -6.2
221.5
41.5
12-1 120.1 -35.0
125.7
21.0
34.2 -22J
26.1
101.5
11.2
28.9 131.4 -19.8
98.6

118.5
117.9
148.0
159.2
157.7
185.6
192.7
196.4

35.4 66.6 31.9 -6.2
8.8 59.7 37.4 19.5
21.3 35.6 37.2 -4.0
28.9 76.2 62.7 -11.6
36.6 95.4 98.8 14.4
58.1 97.1 117.6
1.0
67.2 118.8 126.0
6.5
17.4 135.4 116.5 -9.5

9.0
59.3
-5.5
21.2

162.4
169.5
245.4
193.3;

75.5
46.1
54.5
92.6

113.6
115.2
117.6
129.2

4.3 149.3 55.1
109.0
115.7 14.3 192.8 60.3
9.3 258.2 59.5
146.9
132.2 -1.9 243.3 42.8

5.4 205.6 30.6
104.4
60.6
3.5 245.6 12.7
209.6 -86.5
3.3 178.9 38.6
125.9 -56.7
32.6 155.5 -12.2
129.6 -40.5
104.0 -40.3 -108.0 248.4 25.3
62.6 -128.5 130.2 228.9 43.7
10.0 192.0 65.1
178.8 -77.0

137.9
128.1
138.8
137.2

107.1 -13.4 224.8 -.3 72.3
117.3 -.2 242.5 52.4 145.8
132.6 r!5.8 211.8 61.4 141,4
109.0 -8.8 205.9 49.4 67.1

466.2 62.5
435.1 90.8
578.6 63.4
576.9 159.6
1987: 1
308.1 373.4 -67.2
336.7 532.1 63.5
Ill"" 314.4 473.3 55.1
IV... 458.5 543.7 14.5
422.5 485.3 5.8
1988: 1
377.3 498.0 59.4
Ill"" 423.3 564.9 5.5
1986: 1
II ....
Ill ...
IV...

336.3
288.2
376.8
373.3

2.4
1.3
.0
-.2
6.0
30.6

-.7
-5.9
-11.2
-4.3
2 -8.8
19.Z -4.3
21.0
-2,1
22.3
-6.2
3.9
-.5
12.6
-7.3
31.1 -12.5
65.3 -25.5

129.0
85.4
129.3
62.5

38.8 -72.3
45.8 -80.4
56.1 32.4
-3.8
29.7

20.3
80.3
92.0
202.0

13.8
3.5
36.1
62.2

50.8
199.2
130.5 -28.8
13.2
177.4

61.2
18.7
2.8
21.8

1
2 Saving by households,

13.0;

2.0
1.3
6.9
2,0

4.0
4.9
4.8
4.4

2.9
3.5
3.1
3.1

0.2
2.4
2.6
2.3

14.9
11.4
8.7
10.3
7.0
12.7
8.8
7.9
3.7
7.7

7.2

7.1
6.6
6.4
7.6
9.0
12.3
11.0
8.8
9.6
12.9

4.6
1.4
5.2
4.1
1.4
7.0
3.6
2.6
.3
7.7

5.7
3.8
3.5
2.5
5.3
6.1
4.6
3.2
6.9
6.1

15.7
13.5
14.0
15.5
15.7
15.3
14.5
12.6
17.0
17.2

7.3
"4.5
8.6
11.9
15.1
20.2
23.2
21.3
26.9
26.2

3.2
4.9
7.0
9.2
8.8

11.4 4.0
12.3 2.2
13.9 5.9
16.6 8.5
17.4 9.5
12.4 17.1 10.1
9.9 13.4 5.9
10.7 12.9
5.1
10.0 17.2 10.8
13.3 18.3 10.1

6.1
7.0
6.4
10.1
11.1
13.7
12,5
17.6
18.1
21.5

14.6
22.3
29.2
33.1
27.9
27.5
41,9
61.0
77.8
86.7

19.9
25.7
34.8
41.2
29.9
28.4
42.9
53.3
58.8
54.0

13.1
19.5
26.6
31.9
14.9

6.7
7.0 9.4
9.5 10.2
8.7 10.9

4.4
1.9
.8
1.7
2.9
1.0
2.1
2.9
4.3

7.5
2.7

15,2
18.9
12.4

13.5
26.2
38.8
44.2
34.6
38.8
60.8
91.5
109.4
117.1

4.6 20.6
33.2
14.1
48.4
19.0
30,0
23.0
9.0 56.2
8.0 33.9
22.9 45.9
36.7 64.4
45.1
87.9
40,5 118.2

96.4 2.6 110.2
73.8 16.9 100.4
52.9 16.4 115.1
120.4 49.0 128.6
136.7 81.6 159.1
157.0 82.5 196.7
210.9 54.4 156.5
221.2 40.7 106.7

.0 178.2
143.2 120.5
143.6 128.3 -3.0 228.1
148.0 126.0 -7.4 210.4

34.8
59.5
43.3

152.4
138.9
157.9
176.9

113.5
102.0
154.4

personal trust funds, nonprofit institutions, farms, and other noncorporate business.
Consists of U.S. savings bonds, other U.S. Treasury securities, U.S. Government agency securities and sponsored agency securities,
mortgage pool securities, and State and local obligations.
3
4 Includes mutual fund shares.
6 Corporate and foreign bonds and open-market paper.
Private life insurance reserves, private insured and n on insured pension reserves, and government insurance and pension reserves.
• Consists of security credit, mortgages, accident and health insurance reserves, and nonlife insurance claims for households and of
consumer credit, equity in sponsored agencies, and nonlife insurance claims for noncorporate business.
7
8 Purchases of physical assets less depreciation.
9 Includes data for corporate farms.
Other debt consists of security credit, policy loans, and noncorporate business debt
Source: Board of Governors of the Federal Reserve System.




341

TABLE B-30.—Number and median income (in 1987 dollars) of families and persons, and poverty status,
by race, selected years, 1965-87
Persons
below
poverty level

Families '
Below poverty level
Year

ALL RACES
1965
1966 3
1967
1968
1969
1970
1971
1972
1973 3
1974
1975
1976
1977
1978
1979 4 .
1980
1981
1982 .
1983 3
1984
1985
1986
1987
WHTTE
1970
1971
1972 .
1973 3
1974
1975
1976
1977
1978 4
1979
1980
1981
1982 3
1983
1984
1985
1986
1987 .
BLACK
1970
1971
1972
1973
1974 3
1975
1976
1977
1978 4
1979
1980
1981
1982 3
1983
1984
1985
1986
1987 . .

Number
(millions)

Median
income

Female
householder

Total
Number
(millions)

Rate

Number
(millions)

Rate

Median income of persons 15 2years old
and over with income
Females

Males

Number
(millions)

Rate

All
persons

Yearround
full-time
workers

All
persons

Yearround
full-time
workers

48.5
49.2
50.1
50,8
51.6
52.2
53.3
54.4
55.1
55.7
56.2
56.7
57.2
57.8
59.6
60,3
61.0
61.4
62.0
62.7
63.6
64.5
65.1

$25,060
26,377
27,004
28,199
29,244
28,880
28,862
30,199
30,820
29,735
28,970
29,863
30,025
30,730
30,669
28,996
27,977
27,591
28,147
28,923
29,302
30,534
30,853

6.7
5.8
5.7
5.0
5.0
5.3
5,3
5.1
4.8
4.9
5.5
5.3
5.3
5.3
5.5
6.2
6.9
7.5
7.6
7.3
7.2
7.0
7.1

13.9
11.8
11.4
10.0
9.7
10.1
10.0
9.3
8.8
8.8
9.7
9.4
9.3
9.1
9.2
10.3
11.2
12.2
12,3
11.6
11.4
10.9
10.8

1.9
1.7
1.8
1.8
1.8
2.0
2.1
2.2
2.2
2.3
2.4
2.5
2.6
2.7
2.6
3.0
3.3
3.4
3.6
3.5
3.5
3,6
3.6

38.4
33.1
33.3
32.3
32.7
32.5
33.9
32.7
32.2
32.1
32.5
33.0
31.7
31.4
30.4
32.7
34.6
36.3
36.0
34.5
34.0
34.6
34.3

33.2
28.5
27.8
25.4
24.1
25.4
25.6
24.5
23.0
23.4
25.9
25.0
24.7
24.5
26.1
29.3
31.8
34.4
35.3
33.7
33.1
32.4
32.5

17.3
14.7
14.2
12.8
12.1
12.6
12.5
11.9
11.1
11.2
12.3
11.8
11.6
11.4
11.7
13.0
14.0
15.0
15.2
14.4
14.0
13.6
13.5

$18,093
18,582
18,902
19,535
19,931
19,523
19,372
20,239
20,603
19,479
18,695
18,819
18,986
19,050
18,443
17,282
16,836
16,425
16,725
17,069
17,232
17,739
17,752

$23,767
24,358
24,812
25,527
26,872
26,881
27,027
28,628
29,329
28,029
27,312
27,669
28,263
27,981
27,368
26,444
25,858
25,498
25,674
26,265
26,411
26,840
26,722

$5,479
5(736
6,131
6,596
6,610
6,548
6,757
7,061
7,151
7,103
7,148
7,139
7,391
7,087
6,814
6,786
6,820
6,932
7,307
7,515
7,625
7,888
8,101

$13,748
14,098
14,290
14,923
15,740
15,922
15,999
16,444
16,593
16,534
16,300
16,595
16,531
16,795
16,489
15,987
15,567
16,087
16,528
16,875
17,170
17,458
17,504

46.5
47.6
48.5
48.9
49.4
49.9
50.1
50.5
50.9
52.2
52.7
53.3
53.4
53.9
54.4
55.0
55.7
56.0

29,960
29,948
31,375
32,211
30,901
30,129
31,019
31,396
31,998
32,003
30,211
29,388
28,969
29,474
30,294
30,799
31,935
32,274

3.7
3.8
3.4
3.2
3.4
3.8
3.6
3.5
3.5
3.6
4.2
4.7
5.1
5.2
4.9
5.0
4.8
4.6

8.0
7.9
7.1
6.6
6,8
7.7
7.1
7.0
6.9
6.9
8.0
8.8
9.6
9.7
9,1
9.1
8.6
8.2

1.1
1.2
1.1
1.2
1.3
1.4
1.4
1.4
1.4
1.4
1.6
1.8
1.8
1.9
1.9
2.0
2.0
1.9

25.0
26.5
24.3
24.5
24.8
25.9
25.2
24.0
23.5
22.3
25.7
27.4
27.9
28.3
27.1
27.4
28.2
26.7

17.5
17.8
16.2
15.1
15.7
17.8
16.7
16.4
16.3
17.2
19.7
21.6
23.5
24.0
23,0
22.9
22.2
21,4

9.9
9.9
9.0
8.4
8.6
9.7
9.1
8.9
8.7
9.0
10.2
11.1
12.0
12.1
11.5
11.4
11.0
10.5

20,521
20,309
21,228
21,618
20,406
19,638
19,839
19,886
19,952
19,267
18,383
17,865
17,365
17,595
18,018
18,078
18,720
18,854

27,651
27,788
29,661
30,178
28,575
27,944
28,493
28,841
28,501
28,159
27,199
26,465
26,177
26,359
27,165
27,144
27,590
27,468

6,632
6,870
7,107
7,220
7,184
7,222
7,199
7,504
7,172
6,878
6,823
6,897
7,026
7,434
7,603
7,773
8,044
8,279

16,203
16,184
16,767
16,874
16,675
16,338
16,723
16,635
16,954
16,633
16,141
15,827
16,304
16,748
17,042
17,413
17,726
17,775

4.9
5.2
5.3
5.4
5.5
5.6
5.8
5.8
5.9
6.2
6.3
6.4
6.5
6.7
6.8
6.9
7.1
7.2

18,378
18,072
18,647
18,590
18,451
18,538
18,451
17,935
18,952
18,122
17,481
16,578
16,011
16,610
16,884
17,734
18,247
18,098

1.5
1.5
1.5
1.5
1.5
1.5
1.6
1.6
1.6
1.7
1.8
2.0
2.2
2.2
2.1
2.0
2.0
2.1

29.5
28.8
29,0
28.1
26.9
27.1
27.9
28.2
27.5
27.8
28.9
30.8
33.0
32.3
30.9
28.7
28.0
29.9

.8
.9
1.0
1.0
1.0
1.0

54.3
53.5
53.3
52.7
52.2
50.1
52.2
51.0
50.6
49.4
49.4
52.9
56.2
53.7
51.7
50.5
50.1
51.8

7.5
7.4
7.7
7.4
7.2
7.5
7.6
7.7
7.6
8.1
8.6
9.2
9.7
9.9
9.5
8.9
9.0
9.7

33.5
32.5
33.3
31.4
30.3
31.3
31.1
31.3
30.6
31.0
32.5
34.2
35.6
35.7
33.8
31.3
31.1
33.1

12,167
12,112
12,858
13,076
12,376
11,741
11,945
11,801
11,952
11,927
11,046
10,623
10,406
10,229
10,338
11,376
11,217
11,101

18,835
19,001
20,030
20,340
20,062
20,796
20,408
19,884
21,829
20,294
19,138
18,724
18,591
18,794
18,539
18,986
19,452
19,385

6,038
6,019
6,640
6,516
6,467
6,561
6,784
6,480
6,458
6,260
6,317
6,127
6,197
6,323
6,745
6,632
6,806
6,796

13,276
14,290
14,344
14,309
14,683
15,609
15,634
15,548
15,714
15,241
15,055
14,293
14,572
14,867
15,358
15,414
15,510
16,211

1.1

1,2
1.2
1.2
1.3
1.4
1.5
1.5
1.5
1.5
1,5
1.6

'The term "family" refers to a group of two or more persons related by blood, marriage, or adoption and residing together; all such
persons are considered members of the same family. Beginning 1979, based on householder concept and restricted w primary families.
2
Prior to 1979, data are for persons 14 years and over.
3
Based on revised methodology; comparable with succeeding years.
4
Based on 1980 census population controls; comparable with succeeding years.
Note.=The poverty level is based on the poverty index adopted by a Federal interagency committee in 1969. That index reflected
different consumption requirements for families based on size and composition, sex and age of family householder, and farm-nonfarm
residence. Minor revisions implemented in 1981 eliminated variations in the poverty thresholds based on two of these variables, farmnonfarm residence and sex of householder. The poverty thresholds are updated every year to reflect changes in the consumer price
index. For further details, see "Current Population Reports," Series P-60, No. 160.
Source: Department of Commerce, Bureau of the Census.




342

POPULATION, EMPLOYMENT, WAGES, AND PRODUCTIVITY
TABLE B-31.—Population by age groups, 1929-88
[Thousands of persons]
Age (years)
July 1
1929
1933
1939
1940
1941
1942
1943
1944
1945
1946 ...
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967. ...
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977 . . .
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988

Total

Under 5

121,767

11,734

125 579

10612

130,880
132,122
133,402
134,860
136,739
138,397
139 928
141,389
144 126
146,631
149,188
152,271
154,878
157,553
160,184
163,026
165,931
168 903
171,984
174 882
177,830
180,671
183 691
186,538
189,242
191 889
194 303
196,560
198712
200 706
202 677
205 052
207 661
209,896
211 909

10,418
10,579
10850
11,301
12016
12^24
12979
13,244
14 406
14,919
15,607
16,410
17,333
17,312
17,638
18,057
18,566
19003
19,494
19 887
20,175
20,341
20522
20,469
20,342
20165
19824
19,208
18563
17913
17376
17 166
17244
17*101
16851
16487
16,121
15617
15*564
15735
16063
16,458
16931
17*298
17651
17,830
18,004
18152
18252

213854

215,973
218,035
220 239
222 585
225 055
227,757
230 138
232 520
234 799
237,001
239,279
241 613
243 915
246 113

5-15

16-19

26800
26897
25,179
24,811
24516
24.231
24093
23*949
23907
24,103
24468
25,209
25,852
26,721
27,279
28,894
30,227
31,480
32,682
33994
35,272
36445
37,368
38,494
39765
41,205
41626
42297
42938
43702
44244
44622
44840
44816
44591
44*203
43*582

9127
9302
9,822
9.895
9840
9*730
9607
9*561
9361
9,119
9097
8,952
8,788
8,542
8,446
8,414
8,460
8,637
8,744
8916
9,195 !
9543
10,215
10,683
11025
11,180
12007
12736
13516
14*311
14200
14452
14*800
15289
15*688
16*039
16446
16769
17017
17*194
17*276
1/288
17242
17,160
16771
16*255
15704
15,141
14,819
14802
14*958

42508
42*099
41*298
40428
39552
38844
38*190
37*877
37668
37,657
37,691
37706
37*685

20-24
10694
11152
11,519
11,690
11,807
11,955
12,064
12,062
12036
12,004
11814
11,794
11,700
11,680
11,552
11,350
11,062
10,832
10,714
10616
10,603
10756
10,969
11,134
11483
11,959
12714
13*269
13746
14,050
15248
15786
16*480
17202
18159
18153
18*521
18975
19,527
19 986
20*499
20*946
21*297
21,584
21,821
21807
21*700
21*536
21,214
20,608
19984

25-44
35,862
37319
39,354
39,868
40,383
40,861
41,420
42,016
42521
43,027
43657
44,288
44,916
45,672
46,103
46,495
46,786
47,001
47,194
47,379
47,440
47,337
47,192
47,140
47,084
47,013
46,994
46958
46912
47,001
47194
47721
48064
48,473
48936
50,482
51,749
53051
54,302
55,852
57,561
59,400
61379
63,494
65,619
67,856
69,971
72,049
74,077
76,124
77,897

Note.—Includes Armed Forces overseas beginning 1940. Includes Alaska and Hawaii beginning 1950.
Source: Department of Commerce, Bureau of the Census.




343

45-64
21076
22933
25,823
26,249
26,718
27,196
27,671
28,138
28630
29,064
29498
29,931
30,405
30,849
31,362
31,884
32,394
32,942
33,506
34,057
34,591
35,109
35,663
36,203
36,722
37,255
37,782
38338
38,916
39,534
40193
40846
41,437
41,999
42482
42*,898
43,235
43522
43,801
44,008
44,150
44,286
44,390
44,515
44,569
44,602
44,680
44,818
44,934
45,055
45,303

65 and
over

6474
7363
8,764
9,031
9,288
9,584
9,867
10,147
10494
10,828
11 185
11,538
11,921
12,397
12,803
13,203
13,617
14,076
14,525
14,938
15,388
15,806
16,248
16,675
17,089
17,457
17,778
18,127
18,451
18,755
19,071
19365
19,680
20,107
20561
21,020
21,525
22,061
22,696
23,278
23,892
24,502
25,134
25,704
26,235
26,825
27,426
27,971
28,540
29,167
29,835

TABLE B-32.—Population and the labor force, 1929-88
[Monthly data seasonally adjusted, except as noted]
Unemployment rate

Civil an labor force

Year or month

Labor EmployCivilian
ment
force
noninsti- Resi- includ- includdent
ing
tutional Armed
ing
popula- Forces * resident resident
tion 1
Armed
Armed
Forces Forces

Civil- Civilian
ian emlabor ployCivil- force ment/
a

Employment
Total
Total

Agricultural

Nonagricultural

Unemployment

All
ian
popwork- workulaers2 ers a pation tion
4
rate ratio5

fij:

Thousands of persons 14 years of age and over

1929
1933
1939...
1940
1941
1942
1943
1944
1945
1946 . .
1947

99840
99,900
98,640
94,640
93,220
94,090
103,070
106,018

1947
1948
1949
1950
1951
19528
1953
1954
1955
1956
1957
1958
1959
I9606
1961 6
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972°
19736
1974
1975
1976
1977
19786
1979 ...
1980
1981
1982
1983
1984 .
1985
1986°
1987
1984- Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec

101 827
103i068
103 994
104,995
104,621
105,231
107,056
108,321
109,683
110,954
112,265
113,727
115,329
117,245
118,771
120,153
122,416
124,485
126,513
128,058
129,874
132,028
134,335
137,085
140,216
144,126
147,096
150,120
153,153
156,150
159,033
161,910
164,863
167,745
170,130
172,271
174,215
176,383
178,206
180,587
182,753
175,533
175,679
175,824
175,969
176,123
176,284
176,440
176,583
176,763
176,956
177,135
177,306

49,180
51,590
55,230
55,640
55,910
56,410
55,540
54,630
53,860
57,520
60,168

Percent
37,180 1,550
28,670 12,830
36,140 9,480
37,980 8,120
41,250 5,560
44,500 2,660
45,390 1,070
670
45,010
44,240 1,040
46,930 2,270
49,557 2,356

32
249
17.2
14.6
9.9
4.7
1.9
1,2
1.9
3.9
3.9

55.7
56.0
57.2
58.7
58.6
57.2
55.8
56.8

49,148 2,311
50,714 2,276
49,993 3,637
51,758 3,288
53,235 2,055
53,749 1,883
54,919 1,834
53,904 3,532
55,722 2,852
57,514 2,750
58,123 2,859
57,450 4,602
59,065 3,740
60,318 3,852
60,546 4,714
61,759 3,911
63,076 4,070
64,782 3,786
66,726 3,366
68,915 2,875
70,527 2,975
72,103 2,817
74,296 2,832
75,215 4,093
75,972 5,016
78,669 4,882
81,594 4,365
83,279 5,156
82,438 7,929
85,421 7,406
88,734 6,991
92,661 6,202
95,477 6,137
95,938 7,637
97,030 8,273
96,125 10,678
97,450 10,717
101,685 8,539
103,971 8,312
106,434 8,237
109,232 7,425
99,901 9,016
100,473 8,803
100,739 8,738
101,056 8,764
101,840 8,461
102,233 8,221
102,089 8,518
101,872 8,525
102,090 8,358
102,439 8,381
102,585 8,200
102,825 8,358

3.9
3.8
5.9
5.3
3.3
3.0
2.9
5.5
4.4
4.1
4.3
6.8
5.5
5.5
6.7
5.5
5.7
5.2
4.5
3.8
3.8
3.6
3.5
4.9
5.9
5.6
4.9
5.6
8.5
7,7
7,1
6.1
5.8
7.1
7.6
9.7
9.6
7.5
7.2
7.0
6.2
8.0
7.8
7.8
7.7
7.4
7.2
7.5
7.5
7.3
7.4
7.2
7.3

58.3 56.0
58.8 56.6
58.9 55.4
59.2 56.1
59.2 57.3
59.0 57.3
58.9 57.1
58.8 55.5
59.3 56.7
60.0 57.5
59.6 57.1
59.5 55.4
59.3 56.0
59.4 56.1
59.3 55.4
58.8 55.5
58.7 55.4
58.7 55.7
58.9 56.2
59.2 56.9
59.6 57.3
59.6 57.5
60.1 58.0
60.4 57.4
60.2 56.6
60.4 57.0
60.8 57.8
61.3 57,8
61.2 56.1
61.6 56.8
62.3 57.9
63.2 59.3
63.7 59.9
63.8 59.2
63.9 59.0
64.0 57,8
64.0 57.9
64.4 59.5
64.8 60.1
65.3 60.7
65.6 61.5
63.9 58.8
64.1 59.1
64.1 59.1
64.3 59.3
64.5 59.7
64.6 59.9
64.6 59.8
64.4 59.6
64.4 59.7
64.4 59.7
64.5 59.8
64.6 59.9

47,630 10,450
38,760 10,090
45,750 9,610
47,520 9,540
50,350 9,100
53,750 9,250
54,470 9,080
53,960 8,950
52,820 8,580
55,250 8,320
57,812 8,256

47.6
50.4
54.5
57.6
57.9
56.1
53.6
54.5

Thousands of persons 16 years of age and over

1,169
2,143
2,386
2,231
2,142
2,064
1,965
1,948
1,847
1,788
1,861
1,900
2,061
2,006
2,018
1,946
2,122
2,218
2,253
2,238
2,118
1,973
1,813
1,774
1,721
1,678
1,668
1,656
1,631
1,597
1,604
1,645
1,668
1,676
1,697
1,706
1,706
1,737
1,686
1,684
1,686
1,693
1,690
1,690
1,698
1,712
1,720
1,705
1,699
1,698

63,377
64,160
64,524
65,246
65,785
67,087
68,517
68,877
69,486
70,157
71,489
72,359
72,675
73,839
75,109
76,401
77,892
79,565
80,990
82,972
84,889
86,355
88,847
91,203
93,670
95,453
97,826
100,665
103,882
106,559
108,544
110,315
111,872
113,226
115,241
117,167
119,540
121,602
113,899
114,314
114,397
114,822
115,310
115,521
115,645
115,404
115,556
115,720
115,884
116,268

60,087
62,104
62,636
63,410
62,251
64,234
65,764
66,019
64,883
66,418
67,639
67,646
68,763
69,768
71,323
73,034
75,017
76,590
78,173
80,140
80,796
81,340
83,966
86,838
88,515
87,524
90,420
93,673
97,679
100,421
100,907
102,042
101,194
102,510
106,702
108,856
111,303
114,177
104,883
105,511
105,659
106,058
106,849
107,300
107,127
106,879
107,198
107,339
107,684
107,910

59,350
60,621
61,286
62,208
62,017
62,138
63,015
63,643
65,023
66,552
66,929
67,639
68,369
69,628
70,459
70,614
71,833
73,091
74,455
75,770
77,347
78,737
80,734
82,771
84,382
87,034
89,429
91,949
93,775
96,158
99,009
102,251
104,962
106,940
108,670
110,204
111,550
113,544
115,461
117,834
119,865
112,213
112,630
112,711
113,129
113,620
113,831
113,947
113,692
113,836
114,015
114,185
114,570

57,038
58,343
57,651
58,918
59,961
60,250
61,179
60,109
62,170
63,799
64,071
63,036
64,630
65,778
65,746
66,702
67,762
69,305
71,088
72,895
74,372
75,920
77,902
78,678
79,367
82,153
85,064
86,794
85,846
88,752
92,017
96,048
98,824
99,303
100,397
99,526
100,834
105,005
107,150
109,597
112,440
103,197
103,827
103,973
104,365
105,159
105,610
105,429
105,167
105,478
105,634
105,985
106,212

See next page for continuation of table.




344

7,890
7,629
7,658
7,160
6,726
6,500
6,260
6,205
6,450
6,283
5,947
5,586
5,565
5,458
5,200
4,944
4,687
4,523
4,361
3,979
3,844
3,817
3,606
3,463
3,394
3,484
3,470
3,515
3,408
3,331
3,283
3,387
3,347
3,364
3,368
3,401
3,383
3,321
3,179
3,163
3,208
3,296
3,354
3,234
3,309
3,319
3,377
3,340
3,295
3,388
3,195
3,400
3,387

5.2
3.2
2.9
2.8
5.4
4.3
4.0
4.2
6.6
5.3
5.4
6.5
5.4
5.5
5.0
4.4
3.7
3.7
3.5
3.4
4.8
5.8
5.5
4.8
5.5
8.3
7.6
6.9
6.0
5.8
7.0
7.5
9.5
9.5
7.4
7.1
6.9
6.1
7.9
7.7
7.6
7.6
7.3
7.1
7.4
7.4
7.2
7.2
7.1
7.2

TABLE B-32.—Population and the labor force, 1929-88—Continued
[Monthly data seasonally adjusted, except as noted]

Year or month

Labor Employforce
Civilian
ment
noninsti- Resi- includ- including
dent
ing
tutional Armed
popula- Forces * resident resident
tion '
Armed Armed
Forces Forces

Civilian labor force
Employment
Total

Total

»
turat

UnemNonployagricultural ment

Unemployment rate

Civilian
labor
force
Atl Civil- parian
work- work- ticiers 3 ers 3 pation
rate 4
Percent

Thousands of persons 16 years of age and over

1985- Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Mov
Dec
1986: Jan 6
Feb
Mar

May"!!!!!!!!!!

June
Julv
Aug
Sept
Oct
Nov
Dec
1987: Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec
1988: Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov

177,384
177,516
177,667
177,799
177,944
178,096
178,263
178,405
178,572
178,770
178,940
179,112
179,670
179,821
179,985
180,148
180,311
180,503
180,682
180,828
180,997
181,186
181,363
181,547
181,827
181,998
182,179
182,344
182,533
182,703
182,885
183,002
183,161
183,311
183,470
183,620
183,822
183,969
184,111
184,232
184,374
184,562
184,729
184,830
184,962
185,114
185,244

1,697
1,703
1,701
1,702
1,705
1,702
1,704
1,726
1,732
1,700
1,702
1,698
1,691
1,691
1,693
1,695
1,687
1,680
1,672
1,697
1,716
1,749
1,751
1,750
1,748
1,740
1,736
1,735
1,726
1,718
1,720
1,736
1,743
1,741
1,755
1,750
1,749
1,736
1,736
1,732
1,714
1,685
1,673
1,692
1,704
1,687
1,705

116,457
116,606
117,012
117,040
116,916
116,723
116,993
117,037
117,613
117,787
117,857
118,017
118,442
118,642
118,876
119,029
119,168
119,792
119,787
119,847
120,061
120,173
120,422
120,326
120,726
120,970
120,982
121,098
121,633
121,326
121,610
122,042
121,706
122,128
122,349
122,472
122,924
123,084
122,639
123,055
122,692
123,157
123,357
123,723
123,628
123,699
124,277

107,993
108,276
108,691
108,644
108,612
108,309
108,513
108,851
109,367
109,488
109,702
109,861
110,595
110,215
110,546
110,656
110,724
111,351
111,509
111,732
111,763
111,943
112,208
112,407
112,762
113,084
113,191
113,541
114,060
114,018
114,359
114,786
114,615
114,951
115,259
115,494
115,878
116,145
115,839
116,445
115,909
116,703
116,732
116,872
117,032
117,208
117,681

114,760
114,903
115,311
115,338
115,211
115,021
115,289
115,311
115,881
116,087
116,155
116,319
116,751
116,951
117,183
117,334
117,481
118,112
118,115
118,150
118,345
118,424
118,671
118,576
118,978
119,230
119,246
119,363
119,907
119,608
119,890
120,306
119,963
120,387
120,594
120,722
121,175
121,348
120,903
121,323
120,978
121,472
121,684
122,031
121,924
122,012
122,572

106,296 3,331 102,965 8,464
106,573 3.325 103,248 8,330
106,990 3,260 103,730 8,321
106,942 3,319 103,623 8,396
106,907 3,238 103,669 8,304
106,607 3,147 103,460 8,414
106,809 3,134 103,675 8,480
107,125 3,141 103,984 8,186
107,635 3,059 104,576 8,246
107,788 3,059 104,729 8,299
108,000 3,073 104,927 8,155
108,163 3,147 105,016 8,156
108,904 3,307 105,597 7,847
108,524 3,097 105,427 8,427
108,853 3,213 105,640 8,330
108,961 3,168 105,793 8,373
109,037 3,099 105,938 8,444
109,671 3,176 106,495 8,441
109,837 3,127 106,710 8,278
110,035 3,106 106,929 8,115
110,047 3,164 106,883 8,298
110,194 3,142 107,052 8,230
110,457 3,233 107,224 8,214
110,657 3,153 107,504 7,919
111,014 3,174 107,840 7,964
111,344 3,225 108,119 7,886
111,455 3,237 108,218 7,791
111,806 3,250 108,556 7,557
112,334 3,269 109,065 7,573
112,300 3,192 109,108 7,308
112,639 3,212 109,427 7,251
113,050 3,143 109,907 7,256
112,872 3,184 109,688 7,091
113,210 3.249 109,961 7,177
113,504 3,172 110,332 7,090
113,744 3,215 110,529 6,978
114,129 3,293 110,836 7,046
114,409 3,228 111,182 6,938
114,103 3,204 110,899 6,801
114,713 3,228 111,485 6,610
114,195 3,035 111,160 6,783
115,018 3,085 111,933 6,455
115,059 3,046 112,014 6,625
115,180 3,151 112,029 6,851
115,328 3,169 112,158 6,596
115,521 3,266 112,255 6,491
115,976 3,276 112,700 6,595

1

Civilian
employment/
population
ratio 5

7.3
7.1
7.1
7.2
7.1
7.2
7.2
7.0
7.0
7.0
6.9
6.9
6.6
7.1
7.0
7.0
7.1
7.0
6.9
6.8
6.9
6.8
6.8
6.6
6.6
6.5
6.4
6.2
6.2
6.0
6.0
5.9
5.8
5.9
5.8
5.7
5.7
5.6
5.5
5.4
5.5
5.2
5.4
5.5
5.3
5.2
5.3

7.4
7.2
7.2
7.3
7.2
7.3
7.4
7.1
7.1
7.1
7.0
7.0
6.7
7.2
7.1
7.1
7.2
7.1
7.0
6.9
7.0
6.9
6.9
6.7
6.7
6.6
6.5
6.3
6.3
6.1
6.0
6.0
5.9
6.0
5.9
5.8
5.8
5.7
5.6
5.4
5.6
5.3
5.4
5.6
5.4
5.3
5.4

64.7
64.7
64.9
64.9
64.7
64.6
64.7
64.6
64.9
64.9
64.9
64.9
65.0
65.0
65.1
65.1
65.2
65.4
65.4
65.3
65.4
65.4
65.4
65.3
65.4
65.5
65.5
65.5
65.7
65.5
65.6
65.7
65.5
65.7
65.7
65.7
65.9
66.0
65.7
65.9
65.6
65.8
65.9
66.0
65.9
65.9
66.2

59.9
60.0
60.2
60.1
60.1
59.9
59.9
60.0
60.3
60.3
60.4
60.4
60.6
60.4
60.5
60.5
60.5
60.8
60.8
60.9
60.8
60.8
60.9
61.0
61.1
61.2
61.2
61.3
61.5
61.5
61.6
61.8
61.6
61.8
61.9
61.9
62.1
62.2
62.0
62.3
61.9
62.3
62.3
62.3
62.4
62.4
62.6

Not seasonally adjusted.
Unemployed as percent of labor force including resident Armed Forces.
Unemployed as percent of civilian labor force.
4
Civilian labor force as percent of civilian noninstitutional population.
5
Civilian employment as percent of civilian noninstitutional population.
6
Not strictly comparable with earlier data due to population adjustments as follows: Beginning 1953, introduction of 1950 census
data added about 600,000 to population and 350,000 to labor force, total employment and agricultural employment. Beginning 1960,
inclusion of Alaska and Hawaii added about 500,000 to population, 300,000 to labor force, and 240,000 to nonagricultural employment.
Beginning 1962, introduction of 1960 census data reduced population by about 50,000 and labor force and employment by 200,000.
Beginning 1972, introduction of 1970 census data added about 800,000 to civilian noninstitutional population and 333,000 to labor
force and employment. A subsequent adjustment based on 1970 census in March 1973 added 60,000 fo labor force and to employment.
Beginning 1978, changes in sampling and estimation procedures introduced into the household survey added about 250,000 to labor
force and to employment. Unemployment levels and rates were not significantly affected. Beginning 1986, the introduction of revised
population controls added about 400,000 to the civilian population and labor force and 350,000 to civilian employment. Unemployment
levels and rates were not significantly affected.
Note —Labor force data in Tables B-32 through B-41 are based on household interviews and relate to the calendar week including
the 12th of the month. For definitions of terms, area samples used, historical comparability of the data, comparability with other series,
etc., see "Employment and Earnings."
Source: Department of Labor, Bureau of Labor Statistics.
2

3




345

TABLE B-33-—Civilian employment and unemployment by sex and age, 1947-88
[Thousands of persons 16 years of age and over; monthly data seasonally adjusted]
Civilian employment

Unemployment

Females

Males
Year or month

Total
Total

1947
1948
1949
1950
1951
1952
1953 '
1954
1955
1956
1957
1958
1959
I9601
1961
1962 '
1963
1964
1965
1966
1967
1968
1969
1970
1971.
19721
19731
1974
1975
1976
1977
1978 '
1979
1980
1981
1982
1983
1984
1985
1986 '
1987
1987:Jan
Feb
Mar
Apr
fay
June
July
Aug
Sept
Oct
Nov
Dec
1988: Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov.

16-19
years

20
years
and
over

16-19
years

Total

57,038 40,995 2,218 38,776 16,045
58,343 41,725 2,344 39,382 16,617
57,651 40,925 2,124 38,803 16,723
58,918
59,961
60,250
61,179
60,109
62,170
63,799
64,071
63,036
64,630
65,778
65,746
66,702
67,762
69,305
71,088
72,895
74,372
75,920
77,902
78,678
79,367
82,153
85,064
86,794
85,846
88,752
92,017
96,048
98,824
99,303
100,397
99,526
100,834
105,005
107,150
109,597
112,440
111,014
111,344
111,455
111,806
112,334
112,300
112,639
113,050
112,872
113,210
113,504
113,744
114,129
114,409
114,103
114,713
114,195
115,018
115,059
115,180
115,328
115,521
115,976

41,578
41,780
41,682
42,430
41,619
42,621
43,379
43,357
42,423
43,466
43,904
43,656
44,177
44,657
45,474
46,340
46,919
47,479
48,114
48,818
48,990
49,390
50,896
52,349
53,024
51,857
53,138
54,728
56,479
57,607
57,186
57,397
56,271
56,787
59,091
59,891
60,892
62,107
61,562
61,697
61,688
61,815
61,977
61,984
62,150
62,341
62,368
62,468
62,581
62,656
62,808
63,059
62,759
63,323
63,030
63,411
63,490
63,425
63,512
63,417
63,537

2,186
2,156
2,107
2,136
1,985
2,095
2,164
2,115
2,012
2,198
2,361
2,315
2,362
2,406
2,587
2,918
3,253
3,186
3,255
3,430
3,409
3,478
3,765
4,039
4,103
3,839
3,947
4,174
4,336
4,300
4,085
3,815
3,379
3,300
3,322
3,328
3,323
3,381
3,342
3,373
3,308
3,299
3,304
3,352
3,367
3,516
3,401
3,431
3,417
3,471
3,521
3,434
3,352
3,440
3,439
3,614
3,537
3,591
3,489
3,428
3,556

39,394
39,626
39,578
40,296
39,634
40,526
41,216
41,239
40,411
41,267
41,543
41,342
41,815
42,251
42,886
43,422
43,668
44,294
44,859
45,388
45,581
45,912
47,130
48,310
48,922
48,018
49,190
50,555
52,143
53,308
53,101
53,582
52,891
53,487
55,769
56,562
57,569
58,726
58,220
58,324
58,380
58,516
58,673
58,632
58,783
58,825
58,967
59,037
59,164
59,185
59,287
59,625
59,407
59,883
59,590
59,797
59,954
59,834
60,024
59,989
59,981

17,340
18,181
18,568
18,749
18,490
19,551
20,419
20,714
20,613
21,164
21,874
22,090
22,525
23,105
23,831
24,748
25,976
26,893
27,807
29,084
29,688
29,976
31,257
32,715
33,769
33,989
35,615
37,289
39,569
41,217
42,117
43,000
43,256
44,047
45,915
47,259
48,706
50,334
49,452
49,647
49,767
49,991
50,357
50,316
50,489
50,709
50,504
50,742
50,923
51,088
51,321
51,350
51,344
51,390
51,166
51,607
51,569
51,755
51,815
52,104
52,439

20
years
and
over

1,691
1,682
1,588
1,517
1,611
1,612
1,584
1,490
1,547
1,654
1,663
1,570
1,640
1,768
1,793
1,833
1,849
1,929
2,118
2,468
2,496
2,526
2,687
2,735
2,730
2,980
3,231
3,345
3,263
3,389
3,514
3,734
3,783
3,625
3,411
3,170
3,043
3,122
3,105
3,149
3,260
3,162
3,162
3,185
3,230
3,329
3,228
3,283
3,401
3,253
3,262
3,289
3,338
3,344
3,345
3,212
3,220
3,206
3,438
3,370
3,288
3,364
3,333
3,286

14,354
14,936
15,137
15,824
16,570
16,958
17,164
17,000
18,002
18,767
19,052
19,043
19,524
20,105
20,296
20,693
21,257
21,903
22,630
23,510
24,397
25,281
26,397
26,952
27,246
28,276
29,484
30,424
30,726
32,226
33,775
35,836
37,434
38,492
39,590
40,086
41,004
42,793
44,154
45,556
47,074
46,290
46,485
46,582
46,761
47,028
47,088
47,206
47,308
47,251
47,480
47,634
47,750
47,977
48,005
48,132
48,170
47,960
48,169
48,199
48,466
48,452
48,771
49,153

1
See footnote 6, Table B-32.
Note,-=See Note, Table B-32.
Source: Department of Labor, Bureau of Labor Statistics.




Males

346

Total

Females

20
20
Total 16-19 years Total 16-19 years
years and
years and
over
over

270
2,311 1,692
256
2,276 1,559
3,637 2,572 353
3,288 2,239 318
2,055 1,221 191
205
1,883 1,185
184
1,834 1,202
3,532 2,344 310
274
2,852 1,854
2,750 1,711
269
2,859 1,841
300
4,602 3,098 416
3,740 2,420 398
3,852 2,486 426
4,714 2,997 479
3,911 2,423 408
4,070 2,472 501
3,786 2,205 487
3,366 1,914
479
2,875 1,551
432
2,975 1,508 448
2,817 1,419
426
440
2,832 1,403
4,093 2,238 599
5,016 2,789 693
4,882 2,659 711
4,365 2,275 653
5,156 2,714
757
7,929 4,442 966
7,406 4,036 939
6,991 3,667 874
6,202 3,142 813
6,137 3,120
811
7,637 4,267 913
8,273 4,577 962
10,678 6,179 1,090
10,717 6,260 1,003
8,539 4,744 812
8,312 4,521
806
8,237 4,530 779
7,425 4,101 732
7,964 4,449 758
7,886 4,374 768
7,791 4,327 774
7,557 4,214
760
7,573 4,259 803
7,308 4,080 658
7,251 3,960 637
7,256 4,021
763
7,091 3,827 709
7,177 3,899 725
7,090 3,845 710
6,978 3,785 722
7,046 3,847 693
6,938 3,707 636
727
6,801 3,816
, 6,610 3,553 644
6,783 3,736 664
6,455 3,495 625
704
6,625 3,519
6,851 3,768 678
6,596 3,555 698
6,491 3,600 698
6,595 3,642 604

1,422
1,305
2,219
1,922
1,029
980
1,019
2,035
1,580
1,442
1,541
2,681
2,022
2,060
2,518
2,016
1,971
1,718
1,435
1,120
1,060
993
9S3
1,638
2,097
1,948
1,624
1,957
3,476
3,098
2,794
2,328
2,308
3,353
3,615
5,089
5,257
3,932
3,715
3,751
3,369
3,691
3,606
3,553
3,454
3,456
3,422
3,323
3,258
3,118
3,174
3,135
3,063
3,154
3,071
3,089
2,909
3,072
2,870
2,815
3,090
2,857
2,902
3,038

619
717
1,065
1,049
834
698
632
1,188
998
1,039
1,018
1,504
1,320
1,366
1,717
1,488
1,598
1,581
1,452
1,324
1,468
1,397
1,429
1,855
2,227
2,222
2,089
2,441
3,486
3,369
3,324
3,061
3,018
3,370
3,696
4,499
4,457
3,794
3,791
3,707
3,324
3,515
3,512
3,464
3,343
3,314
3,228
3,291
3,235
3,264
3,278
3,245
3,193
3,200
3,23V
2,985
3,057
3,047
2,960
3,106
3,083
3,041
2,890
2,954

144
153
223
195
145
140
123
191
176
209
197
262
256
286
349
313
383
385
395
405
391
412
413
506
568
598
583
665
802
780
789
769
743
755
800
886
825
687
661
675
616
638
654
632
610
614
594
611
574
593
663
625
582
619
596
574
615
566
487
530
615
580
489
496

475
564
841
854
689
559
510
997
823
832
821
1,242
1,063
1,080
1,368
1,175
1,216
1,195
1,056
921
1,078
985
1,015
1,349
1,658
1,625
1,507
1,777
2,684
2,588
2,535
2,292
2,276
2,615
2,895
3,613
3,632
3,107
3,129
3,032
2,709
2,877
2,858
2,832
2,733
2,700
2,634
2,680
2,661
2,671
2,615
2,620
2,611
2,581
2,635
2,411
2,442
2,481
2,473
2,576
2,468
2,461
2,401
2,458

TABLE B-34.—Civilian employment by demographic characteristic, 1954-88
[Thousands of persons 16 years of age and over; monthly data seasonally adjusted]

Year or
month

1954

60 109
62170
63799
64071
63036
64630

1955
1956
1957
1958
1959
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987

1987: Jan
Feb
Mar

fc
June
July
Aug.
Sept
Oct
Nov
Dec
1988: Jan
Feb
Mar
May
June

July
Aug

Sept
Oct
Nov

Wh te

All

civilian
workers

65778
65746
66702
67762
69305
71088
72'895
74372
75920
77902
78678
79367
82153
85 064
86794
85846
88752
92017
96048
98824
99 303
100,397
99526
100 834
105,005
107,150
109,597
112,440
111,014
111,344
111,455
111,806
112,334
112,300
112,639
113,050
112,872
113,210
113,504
113,744
114,129
114,409
114,103
114,713
114,195
115,018
115,059
115,180
115,328
115,521
115,976

Total

Males

Females

53957
55833
57269
57,465
56613
58,006
58,850
58913
59,698
60622
61922
63446
65021
66361
67750
69518
70217
70,878
73370
75708
77184
76,411
78853
81,700
84936
87,259
87715
88,709
87903
88893
92,120
93,736
95,660
97,789
96,749
97,001
97,074
97,338
97,829
97,698
97,917
98,181
98,069
98,317
98,492
98,779
99,044
99,474
99,274
99,751
99,297
99,932
99,725
99,901
100,019
100,144
100,578

37846
38719
39368
39,349
38591
39,494
39,755
39588
40,016
40428
41115
41844
42331
42833
43411
44048
44178
44,595
45944
47,085
47674
46,697
47775
49,150
50544
51,452
51127
51,315
50287
50621
52,462
53,046
53,785
54,647
54,273
54,403
54.323
54,403
54,591
54,553
54,651
54.779
54,801
54,895
54,976
55,111
55,181
55.510

16,111
17114
17901
18416
18,022
18,512
19,095
19325
19,682
20194
20 807
21602
22*690
23528
24*339
25470
26039
26J283
27426
2|63
8,2
29511
29,714
31078
32*.550
34392
35,807
36,587
37,394
37615
38*272
39.B59
40,690
41.876
43,142
42,476
42,598
42.751
42,935
43,238
43,145
43,266
43,402
43;268
43,422
43.516
43,668
43,863
43,964
44,027
44.181
43,977
44.266
44,040
44,292
44,362
44.516
44331

3,078
3225
3*389
3,374
3,216
3,475
3,700
3,693
3,774
3851
4,076
4562
5176
5,114
5195
5,508
5571
5,670
6173
6,623
6,796
6487
6724
Xros
7367
7,356
7021
6,588
5984
5799
•MOB
5,768
5792
5,898
5,840
5,880
5,813
5,846
5,935
5*842
5,904
6.017
5.915
5,917
6,021
6,095
6,100
5916
6*258
6.081
6,038
6,054
5,977
6066

55',320
55.666
55,684
55,609
55,657
55,628
55.747

Total

FeMates males

Both
sexes
16-19

6,152
6341
6534
6,604
6423
6,623
6,928
6833
7,003
7140
7*383
7643
7877
8011
8169
8384

3,773
3904
4,013
4,006
3833

2,379
2437
2,521
2,598
2,590
2,652
2,779
2,765
2,843
2911
3,024
3147
3289
frS
3467
3,614
3,650
3,692
3,832
4,092
4,258
4*275
4,536
4739
5,177
5,409
5,529
5,606
5,641
5,775
6,256
6,569
6,830
7,192
6,974
7,016
7,039
7,059
7,118
7*172
7,240
7,286
7,219
7,345
7,404
7,426
7,426
7.335
7,330
7.202
7,164
7,316
7,523
7,470
7,473
7,624
7,600

Total

FeMales males

Both
sexes
16-19

7802
8',128
8,203
7,894
8,227
8,540
9,102
9,359
9,313
9,355
9,189
9375
10,119
10,501
10,814
11,309
10,995
11,086
11,072
11,114
11,129
11,238
11,381
11,513
11,421
11,556
11,589
11,605
11,608
11,504
11,420
11,482
11,452
11,489
11,774
11,764
11,771
11,829
11,850

4,368
4,527
4,527
4,275
4,404
4,565
4,796
4,923
4,798
4,794
4,637
4,753
5,124
5,270
5,428
5,661
5,553
5,565
5,579
5,600
5,570
5,614
5,689
5,750
5,738
5,753
5,763
5,754
5,793
5,721
5,676
5,823
5,782
5,788
5,835
5,893
5,907
5,909
5,875

3433
3,601
3,677
3,618
3,823
3,975
4,307
4,436
4,515
4,561
4,552
4,622
4,995
5,231
5,386
5,648
5,442
5,521
5,493
5,514
5,559
5,624
5,692
5,763
5,683
5,803
5,826
5,851
5,815
5,783
5,744
5,659
5,670
5,701
5,939
5,871
5,865
5,919
5,975

509
570
554
507
508
508
571
579

396
418
430
407
365
362

8464
8,488
8783
9,356
9610
9,435
9899
10,317
11112
11,565
11588
11,688
11624
11941
12,885
13,414
13.937
14,652
14,295
14,320
14.392
14,467
14.475
14,582
14,725
14,804
14,778
14,946
15,017
15,008
15,076
14,884
14,853
14,939
14,818
15,017
15,319
15.299
15301
15,431
15,377

Note.-See footnote 6 and Note, Table B-32.
Source: Department of Labor, Bureau of Labor Statistics.




Bla :k

Black and other
Both
sexes
16-19

347

3.971

4,149
4068
4*160
429
!2
4359
4496
4*588
4,646
4702
4770
4813
4>96
4,952
5,265
5352
5,161
5363
W9
5936
6J56
6,059
6,083
5,983
6166
6,629
6,845
7,107
7,459
7^21
7304
7,353
7,408
7.357
7,410
7,485

m
7.601

7,613
7,582
7,649
7,549
7,523
7,737
7,654
7,701
7,796
7,829
7827
787
.0
7777

430
414
420
404
440
474
545
568
584
609
574
538
573
647
652
615
611
619
703
727
689
637
565
543
607
666
681
742
680
695
683
679
679
731
736
822
795
797
805
794
757
710
712
735
744
787
820
785
800
801
793

547
505
428
416
474
532
536
587
517
554
544
538
541
570
580
676
643
630
622
631
561
537
526
564
589
610
632
626
627
622
626

TABLE B-35.—Unemployment by demographic characteristic, 1954-88
[Thousands of persons 16 years of age and over; monthly data seasonally adjusted]

Year or
month
1954
1955
1956
1957
1958
1959
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977. .. .
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1987: Jan
Feb
Mar

&:
::
June
July
Aug
Sept
Oct
Nov
Dec
1988: Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov

All
civilian
workers

3,532
2,852
2,750
2,859
4,602
3,740
3,852
4,714
3,911
4,070
3,786
3,366
2,875
2,975
2,817
2,832
4,093
5,016
4,882
4,365
5,156
7,929
7,406
6,991
6,202
6,137
7,637
8,273
10,678
10,717
8,539
8,312
8,237
7,425
7,964
7,886
7,791
7,557
7,573
7,308
7,251
7,256
7,091
7,177
7,090
6,978
7,046
6,938
6,801
6,610
6,783
6,455
6,625
6,851
6,596
6,491
6,595

Black and other

White
Total

Males

2t859
2,252
2,159
2,289
3,680
2,946
3,065
3,743
3,052
3,208
2,999
2,691
2,255
2,338
2,226
2,260
3,339
4,085
3,906
3,442
4,097
6,421
5,914
5,441
4,698
4,664
5,884
6,343
8,241
8,128
6,372
6,191
6,140
5,501
5,920
5,824
5,762
5,634
5,587
5,452
5,331
5,335
5,288
5,352
5,239
5,128
5,208
5,056
4,897
4,824
4,913
4,759
4,878
5,106
5,024
4,858
4,898

1,913
1,478
1,366
1,477
2,489
1,903
1,988
2,398
1,915
1,976
1,779
1,556
1,241
1,208
1,142
1,137
1,857
2,309
2,173
1,836
2,169
3,627
3,258
2,883
2,411
2,405
3,345
3,580
4,846
4,859
3,600
3,426
3,433
3,132
3,391
3,332
3,321
3,238
3,219
3,149
2,992
3,016
2,945
3,048
2,935
2,858
2,928
2,693
2,838
2,677
2,784
2,636
2,657
2,866
2,795
2,787
2,786

Females

Both
sexes
16-19

Total

946
774
793
812
1,191
1,043

423
373
382
401
541
525

673
601
591
570
923
793

431
376
345
364
610
517

242
225
246
206
313
276

1,077
1,345
1,137
1,232
It220
1,135
1,014
1,130
1,084
1,123
1,482
1,777
1,733
1,606
1,927
2,794
2,656
2,558
2,287
2,260
2,540
2,762
3,395
3,270
2,772
2,765
2,708
2,369
2,529
2,492
2,441
2,396
2,368
2,303
2,339
2,319
2,343
2,304
2,304
2,270
2,279
2,362
2,059
2,146
2,128
2,123
2,221
2,240
2,228
2,071
2,111

575
669
580
708
708
705
651
635
644
660

788
971
861
863
787
678
622
638
590
571

498
599
509
496
426
360
310
300
277
267

290
372
352
367
361
318
312
338
313
304

754
930
977
924
1,058
1,507
1,492
1,550
1,505
1,473
1,752
1,930
2,437
2,588
2,167
2,121
2,097
1,924

380
481
486
440
544
815
779
784
731
714

374
450
491
484
514
692
713
766
774
759

235
249
288
280
318
355
355
379
394
362

922
997
1,334
1,401
1,144
1,095
1,097
969
1,052
1,031
1,007
993
1,048
963
960
973
893
860
911
913
916
1,014
989
888
961
879
837
857
781
843
875

830
933
1,104
1,187
1,022
1,026
999
955
994
1,030
1,035
942
949
929
926
920
923
949
941
932
934
881
937
907
918
840
865
837
811
800
840

377
388
443
441
384
394
383
353
368
383
356
354
361
322
314
350
322
372
374
359
334
375
337
286
346
274

Both
sexes
16-19

906 448 458
846 395 451
965 494 470
1,369 741 629
1,334 698 637
1,393
698 695
641 690
1,330
636 683
1,319
815 738
1,553
891 840
1,731
2,142 1,167 975
2,272 1,213 1,059
1,914 1,003 911
913
1,864 951
946 894
1,840
1,684
826 858
895 917
1,812
885 923
1,808
856 925
1,781
1,664 827 837
849
1,760 911
1,654 819 835

279
262
297
330
330
354
360
333

138
159
142
176
165
171
186
203
194
193

871
1,011
1,021
955
1,104
1,413
1,364
1,284
1,189
1,193
1,291
1,374
1,534
1,387
1,116
1,074
1,070
995
1,038
1,044
1,049
1,018
1,061
944
905
984
979
1,000
969
949
992
865
962
973
885
850
902
967
969
889
802

FeMales males

Total

79
77
95
96
138
128

2,046
2,061
2,042
1,935
1,997
1,892
1,886
1,893
1,816
1,809
1,852
1,845
1.850
1,895
1,926
1,795
1,879
1,718
1,701
1,694
1,592
1,642
1,715

Note.—See footnote 6 and Note, Table B-32.
Source: Department of Labor, Bureau of Labor Statistics.




FeMales males

Black
Both
sexes
16=19

348

305
323
311
290
306

1,658
1,637
1,607
1,596
1,604
1,610
1,614
1,663
1,678
1,597
1,617
1,500
1,519
1,498
1,419
1,461
1,497

343
357
396
392
353
357
347
312
333
339
320
317
324
286

823
821
757
747
773
776

835
816
850
849
831
834

282
298
286
322
319
317

778
874
857
771
824
750
728
743
693
750
762

836
789
821
825
793
750
792
755
726
711
736

302
333
308
258
314
242
285
300
294
272
288

TABLE B-36.—Labor force participation rate and employment/population ratio, 1948-88
[Percent; monthly data seasonally adjusted]
Employment/population ratio

Labor force participation rate
Civilian 2
Year or month

1948
1949 .
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1987: Jan
Feb
Mar

fc~
June
July
Aug
Sept
Oct
Nov
Dec
1988: Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov

Total

l

59.7
60.1
60.0
59.7
59.6
60.0
60.7
60.3
60.1
59.9
60.0
600
59.5
59.3
59.4
59.5
59.8
60.2
60.3
60.8
61.0
60.7
60.9
61.3
61.7
61.6
62.0
62.6
63.5
64.0
64.1
64.2
64.3
64.4
64.7
65.1
65.6
65.9
65.8
65.8
65.8
65.8
66.0
65.8
65.9
66.1
65.8
66.0
66.1
66.1
66.2
66.3
66.0
66.2
65.9
66.1
66.2
66.3
66.2
66.2
66.5

FeTotal Males males

58.8
58.9
59.2
59.2
59.0
58.9
58.8
59.3
60.0
59.6
59.5
59.3
59.4

s<n

58.8
58.7
58.7
58.9
59.2
59.6
59.6
60.1
60.4
60.2
60.4
60.8
61.3
61.2
61.6
62.3
63.2
63.7
63.8
63.9
64.0
64.0
64.4
64.8
65.3
65.6
65.4
65.5
65.5
65.5
65.7
65.5
65.6
65.7
65.5
65.7
65.7
65.7
65.9
66.0
65.7
65.9
65.6
65.8
65.9
66.0
65.9
65.9
66.2

86.6
86.4
86.4
86.3
86.3
86.0
85.5
85.4
85.5
84.8
84.2
83.7
83.3
8?<)
82.0
81.4
81.0
80.7
80.4
80.4
80.1
79.8
79.7
79.1
78.9
78.8
78.7
77.9
77.5
77.7
77.9
77.8
77.4
77.0
76.6
76.4
76.4
76.3
76.3
76.2
76.4
76.4
76.2
76.2
76.3
76.0
76.0
76.3
76.0
76.1
76.1
76.1
76.2
76.3
76.0
76.3
76.1
76.2
76.2
76.4
76.2
76.1
76.2

32.7
33.1
33.9
34.6
34.7
34.4
34.6
35.7
36.9
36.9
37.1
37.1
37.7
38.1
37.9
38.3
38.7
39.3
40.3
41.1
41.6
42.7
43.3
43.4
43.9
44.7
45.7
46.3
47.3
48.4
50.0
50.9
51.5
52.1
52.6
52.9
53.6
54.5
55.3
56.0
55.5
55.7
55.7
55.8
56.1
55.9
56.1
56.2
56.0
56.2
56.3
56.4
56.6
56.6
56.3
56.4
56.1
56.4
56.5
56.6
56.6
56.7
57.1

Both
sexes
16-19
years

52.5
52.2
51.8
52.2
51.3
50.2
48.3
48.9
50.9
49.6
47.4
46.7
47.5
46.9
46.1
45.2
44.5
45.7
48.2
48.4
48.3
49.4
49.9
49.7
51.9
53.7
54.8
54.0
54.5
56.0
57.8
57.9
56.7
55.4
54.1
53.5
53.9
54.5
54.7
54.7
54.3
54.7
54.3
54.2
55.2
53.6
54.0
56.3
54.4
55.1
54.8
55.5
56.0
54.9
53.9
54.2
54.0
56.2
56.0
56.4
56.2
55.0
55.0

Civilian *
Black

White and

other

58.2
58.7
59.4
59.1
58.9
58.7
58.8
588
58.3
58.2
58.2
58.4
58.7
59.2
59.3
59.9
60.2
60.1
60.4
60.8
61.4
61.5
61.8
62.5
63.3
63.9
64.1
64.3
64.3
64.3
64.6
65.0
65.5
65.8
65.7
65.7
65.7
65.7
65.9
65.7
65.7
65.9
65.7
65.9
65.9
66.0
66.1
66.3
66.0
66.2
65.9
66.2
66.1
66.3
66.3
66.2
66.5

Black

640
64.2
64.9
64.4
•
64.8
64.3
64.5
641
63.2
63.0
63.1
62.9
63.0
62.8
62.2
62.1
61.8
60.9
60.2 ""59"9"
60.5 60.2
60.3 59.8
59.6 58.8
59.8 59.0
60.4 59.8
62.2 61.5
62.2 61.4
61.7 61.0
61.3 60.8
61.6 61.0
62.1 61.5
62.6 62.2
63.3 62.9
63.7 63.3
64.3 63.8
64.0 63.4
64.1 63.8
64.2 63.5
63.9 63.0
64.0 63.5
63.9 63.4
64.3 64.0
64.5 64.5
64.0 63.8
64.5 64.3
64.8 64.4
64.7 64.4
64.7 64.4
64.1 64.0
63.9 63.6
63.7 63.4
63.4 63.3
63.4 62.8
64.4 64.2
64.1' 64.0
63.6 63.5
64.2 63.9
64.2 64.1

1

Total

3

56.6
58.2
58.2
58.0
56.4
57.5
58.2
57.8
56.1
56.7
56.8
56.1
56.3
56.1
56.4
56.9
57.6
58.0
58.2
58.7
58.0
57.2
57.5
58.3
58.3
56.5
57.3
58.3
59.7
60.3
59.6
59.4
58.2
58.3
59.9
60.5
61.1
61.9
61.4
61.5
61.5
61.7
61.9
61.8
61.9
62.1
62.0
62.1
62.2
62.3
62.4
62.5
62.3
62.6
62.3
62.7
62.6
62.7
62.7
62.7
62.9

Total

56.6
55.4
56.1
57.3
57.3
57.1
55.5
56.7
57.5
57.1
55.4
56.0
56.1
55.4
55.5
55.4
55.7
56.2
56.9
57.3
57.5
58.0
57.4
56.6
57.0
57.8
57.8
56.1
56.8
57.9
59.3
59.9
59.2
59.0
57.8
57.9
59.5
60.1
60.7
61.5
61.1
61.2
61.2
61.3
61.5
61.5
61.6
61.8
61.6
61.8
61.9
61.9
62.1
62.2
62.0
62.3
61.9
62.3
62.3
62.3
62.4
62.4
62.6

FeMales males

83.5
81.3
82.0
84.0
83.9
83.6
81.0
81.8
82.3
81.3
78.5
79.3
78.9
77.6
77.7
77.1
77.3
77.5
77.9
78.0
77.8
77.6
76.2
74.9
75.0
75.5
74.9
71.7
72.0
72.8
73.8
73.8
72.0
71.3
69.0
68.8
70.7
70.9
71.0
71.5
71.2
71.3
71.2
71.3
71.4
71.3
71.5
71.6
71.6
71.7
71.7
71.7
71.8
72.0
71.6
72.2
71.8
72.2
72.2
72.1
72.1
72.0
72.1

31.3
31.2
32.0
33.1
33.4
33.3
32.5
34.0
35.1
35.1
34.5
35.0
35.5
35.4
35.6
35.8
36.3
37.1
38.3
39.0
39.6
40.7
40.8
40.4
41.0
42.0
42.6
42.0
43.2
44.5
46.4
47.5
47.7
48.0
47.7
48.0
49.5
50.4
51.4
52.5
51.8
52.0
52.1
52.3
52.6
52.5
52.6
52.8
52.6
52.8
52.9
53.1
53.2
53.2
53.2
53.2
52.9
53.4
53.3
53.4
53.5
53.7
54.0

Both
sexes
16-19. White

years

47.7
45.2
45.5
47.9
46.9
46.4
42.3
43.5
45.3
43.9
39.9
39.9
40.5
39.1
39.4
37.4
37.3
38.9
42.1
42.2
42.2
43.4
42.3
41.3
43.5
45.9
46.0
43.3
44.2
46.1
48.3
48.5
46.6
44.6
41.5
41.5
43.7
44.4
44.6
45.5
44.7
44.9
44.6
44.8
45.4
45.0
45.5
47.2
45.5
45.7
45.7
46.6
47.0
46.5
45.0
45.6
45.5
48.5
47.5
47.5
47.3
46.8
47.4

55.2
56.5
57.3
56.8
55.3
55.9
55.9
55.3
55.4
55.3
55.5
56.0
56.8
57.2
57.4
58.0
57.5
56.8
57.4
58.2
58.3
56.7
57.5
58.6
60.0
60.6
60.0
60.0
58.8
58.9
60.5
61.0
61.5
62.3
61.9
62.0
62.0
62.1
62.4
62.3
62.3
62.5
62.4
62.5
62.6
62.7
62.8
63.0
62.9
63.2
62.8
63.2
63.0
63.1
63.1
63.2
63.4

Black
and
other

58.0
58.7
59.5
59.3
56.7
57.5
57.9
56.2
56.3
56.2
57.0
57.8
58.4
58.2
58.0
58.1
56.8
54.9
54.1
55.0
54.3
51.4
52.0
52.5
54.7
55.2
53.6
52.6
50.9
51.0
53.6
54.7
55.4
56.8
56.0
56.0
56.2
56.4
56.3
56.6
57.0
57.2
57.0
57.6
57.7
57.6
57.7
56.8
56.6
56.8
56.3
56.9
57.9
57.8
57.7
58.0
57.7

Black

1
53.7
54.5
53.5
50.1
50.8
51.4
53.6
53.8
52.3
51.3
49.4
49.5
52.3
53.4
54.1
55.6
54.5
54.8
54.7
54.8
54.8
55.2
55.9
56.4
55.9
56.5
56.6
56.6
56.5
55.9
55.4
55.7
55.5
55.5
56.8
56.7
56.7
56.9
56.9

Labor force including resident Armed Forces as percent of noninstitutional population including resident Armed Forces.
Civilian labor force as percent of civilian noninstitutional population in group specified.
Employment including resident Armed Forces as percent of noninstitutional population including resident Armed Forces.
Civilian employment as percent of civilian noninstitutional population in group specified.
Note.—Data relate to persons 16 years of age and over.
See footnote 6 and Note, Table B-32.
Source: Department of Labor, Bureau of Labor Statistics.
2

3

4




349

TABLE B-37.—Civilian labor force participation rate by demographic characteristic, 1954-88
[Percent;1 monthly data seasonally adjusted]
Black and other or black

White
Year or month

All
civilian
work- Total
ers
Total

16-19
years

Males

Females

Males
20
years Total
and
over

20
16=19 years Total Total
years and
over

Females
20
years Total
and
over

16-19
years

20
16-19 years
years and
over

Black and other
1954
1955
1956....
1957
1958....
1959

58.8
59.3
60.0
59.6
59.5
59.3

58.2
58.7
59.4
59.1
58.9
58.7

85.6
85.4
85.6
84.8
84.3
83.8

57.6
58.6
60.4
59.2
56.5
55.9

87.8
87.5
87.6
86.9
86.6
86.3

33.3
34.5
35.7
35.7
35.8
36.0

40.6
40.7
43.1
42.2
40.1
39.6

32.7
34.0
35.1
35.2
35.5
35.6

64.0
64.2
64.9
64.4
64.8
64.3

85.2
85.1
85.1
84.2
84.1
83.4

61.2
60.8
61.5
58.8
57.3
55.5

87.1
87.8
87.8
87.0
87.1
86.7

46.1
46.1
47.3
47.1
48.0
47.7

31.0
32.7
36.3
33.2
31.9
28.2

47.7
47.5
48.4
48.6
49.8
49.8

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

59.4
59.3
58.8
58.7
58.7
58.9
59.2
59.6
59.6
60.1

58.8
58.8
58.3
58.2
58.2
58.4
58.7
59.2
59.3
59.9

83.4
83.0
82.1
81.5
81.1
80.8
80.6
80.6
80.4
80.2

55.9
54.5
53.8
53.1
52.7
54.1
55.9
56.3
55.9
56.8

86.0
85.7
84.9
84.4
84.2
83.9
83.6
83.5
83.2
83.0

36.5
36.9
36.7
37.2
37.5
38.1
39.2
40.1
40.7
41.8

40.3
40.6
39.8
38.7
37.8
39.2
42,6
42.5
43.0
44.6

36.2
36.6
36.5
37.0
37.5
38.0
38.8
39.8
40.4
41.5

64.5
64.1
63.2
63.0
63.1
62.9
63.0
62.8
62.2
62.1

83.0
82.2
80.8
80.2
80.1
79.6
79.0
78.5
77.7
76.9

57.6
55.8
53.5
51.5
49.9
51.3
51.4
51.1
49.7
49.6

86.2
85.5
84.2
83.9
84.1
83.7
83.3
82.9
82.2
81.4

48.2
48.3
48.0
48.1
48.6
48.6
49.4
49.5
49.3
49.8

32.9
32.8
33.1
32.6
31.7
29.5
33.5
35.2
34.8
34.6

49.9
50.1
49.6
49.9
50.7
51.1
51.6
51.6
51.4
52.0

1970
1971
1972

60.4
60.2
60.4

60.2
60.1
60.4

80.0
79.6
79.6

57.5
57.9
60.1

82.8
82.3
82.0

42.6
42.6
43.2

45.6
45.4
48.1

42.2
42.3
42.7

61.8
60.9
60.2

76.5
74.9
73.9

47.4
44.7
46.0

81.4
80.0
78.6

49.5
49.2
48.8

34.1
31.2
32.3

51.8
51.8
51.2

1972
1973
1974
1975
1976
1977
1978..
1979

60.4
60.8
61.3
61.2
61.6
62.3
63.2
63.7

60.4
60.8
61.4
61.5
61.8
62.5
63.3
63.9

79.6
79.4
79.4
78.7
78.4
78.5
78.6
78.6

60.1
62.0
62.9
61.9
62.3
64.0
65.0
64.8

82.0
81.6
81.4
80.7
80.3
80.2
80.1
80.1

43.2
44.1
45.2
45.9
46.9
48.0
49.4
50.5

48.1
50.1
51.7
51.5
52.8
54.5
56.7
57.4

42.7
43.5
44.4
45.3
46.2
47.3
48.7
49.8

59.9
60.2
59.8
58.8
59.0
59.8
61.5
61.4

73.6
73.4
72.9
70.9
70.0
70.6
71.5
71.3

46.3
45.7
46.7
42.6
41.3
43.2
44.9
43.6

78.5
78.4
77.6
76.0
75.4
75.6
76.2
76.3

48.7
49.3
49.0
48.8
49.8
50.8
53.1
53.1

32.2
34.2
33.4
34.2
32.9
32.9
37,3
36.8

51.2
51.6
51.4
51.1
52.5
53.6
55.5
55.4

1980
1981
1982
1983
1984
1985
1986 .
1987

63.8
63.9
64.0
64.0
64.4
64.8
65.3
65.6

64.1
64.3
64.3
64.3
64.6
65.0
65.5
65.8

78.2
77.9
77.4
77.1
77.1
77.0
76.9
76.8

63.7
62.4
60.0
59.4
59.0
59.7
59.3
59.0

79.8
79.5
79.2
78.9
78.7
78.5
78.5
78.4

51.2
51.9
52.4
52.7
53.3
54.1
55.0
55.7

56.2
55.4
55.0
54.5
55.4
55.2
56.3
56.5

50.6
51.5
52.2
52.5
53.1
54.0
54.9
55.6

61.0
60.8
61.0
61.5
62.2
62.9
63.3
63.8

70.3
70.0
70.1
70.6
70.8
70.8
71.2
71.1

43.2
41.6
39.8
39.9
41.7
44.6
43.7
43.6

75.1
74.5
74.7
75.2
74.8
74.4
74.8
74.7

53.1
53.5
53.7
54.2
55.2
56.5
56.9
58.0

34.9
34.0
33.5
33.0
35.0
37.9
39.1
39.6

55.6
56.0
56.2
56.8
57.6
58.6
58.9
60.0

1987- Jan
Feb ..
Mar

June

65.4
65.5
65.5
65.5
65.7
65.5

65.7
65.7
65.7
65.7
65.9
65.7

77.0
77.1
76.9
76.8
77.0
76.8

59.3
60.3
59.0
58.5
59.3
57.6

78.6
78.5
78.4
78.4
78.5
78.4

55.2
55.3
55.4
55.5
55.8
55.6

56.3
55.9
56.0
56.5
57.8
55.8

55.2
55.3
55.4
55.5
55.7
55.6

63.4
63.8
63.5
63.0
63.5
63.4

71.3
71.2
70.9
70.7
71.1
70.5

43.7
43.0
41.5
42.1
41.7
40.3

74.9
74.9
74.8
74.4
75.0
74.5

57.1
57.8
57.5
56.8
57.2
57.6

35.7
40.2
38.7
37.2
38.4
38.8

59.4
59.7
59.5
58.9
59.3
59.6

July
AUE
Sept
Oct
Nov
Dec

65.6
65.7
65.5
65.7
65.7
65.7

65.7
65.9
65.7
65.9
65.9
66.0

76.6
76.8
76.7
76.9
76.8
76.8

57.1
59.9
58.6
59.3
58.7
60.1

78.3
78.2
78.2
78.4
78.3
78.2

55.7
55.9
55.7
55.8
55.9
56.0

56.7
57.1
55.7
56.5
56.7
57.0

55.7
55.8
55.7
55.7
55.8
55.9

64.0
64.5
63.8
64.3
64.4
64.4

71.2
71.8
70.9
70.9
71.1
71.0

42.2
48.4
43.3
44.5
45.8
45.6

75.1
74.9
74.5
74.3
74.5
74.3

58.1
58.5
58.0
59.0
58.9
59.1

37.4
41.5
42.3
43.1
40.8
41.8

60.4
60.3
59.7
60.7
60.9
61.0

1988- Jan
Feb
Mar

65.9
66.0
65.7
65.9
65.6
65.8

66.1
66.3
66.0
66.2
65.9
66.2

76.9
77.0
76.8
76.9
76.7
76.9

61.0
59.4
59.4
59.2
58.2
60.8

78.3
78.5
78.2
78.5
78.3
78.2

56.2
56.4
56.1
56.3
56.0
56.4

58.1
57.8
55.0
56.7
55.7
58.9

56.1
56.3
56.2
56.3
56.1
56.2

64.4
64.0
63.6
63.4
63.3
62.8

71.3
71.5
70.7
71.2
71.3
70.4

42.7
40.1
37.7
40.1
46.4
44.0

75.0
75.6
75.0
75.3
74.5
73.8

58.7
58.0
57.8
57.1
56.8
56.6

36.9
39.9
38.9
35.4
36.6
34.2

61.1
59.9
59.9
59.4
59.0
59.0

65.9
66.0
65.9
65.9
66.2

66.1
66.3
66.3
66.2
66.5

76.9
77.0
76.9
76.8
76.9

60.3
61.2
60.5
59.6
60.5

78.3
78.4
78.3
78.3
78.3

56.2
56.5
56.5
56.5
56.9

57.4
57.2
58.5
57.0
56.3

56.1
56.4
56.4
56.4
56.9

64.2
64.0
63.5
63.9
64.1

70.5
71.3
70.8
71.4
71.0

45.7
44.7
44.3
46.6
46.7

73.8
74.7
74.2
74.6
74.2

59.0
58.0
57.6
57.9
58.5

38.3
40.2
40.2
35.6
37.2

61.2
59.9
59.5
60.3
60.8

Black

fc

May
June

July
Aug

Sept
Oct
Nov

1

Civilian labor force as percent of civilian noninstitutionai population in group specified.

Note.—Data relate to persons 16 years of age and over.
See footnote 6 and Note, Table B-32.
Source: Department of Labor, Bureau of Labor Statistics.




350

TABLE B-38.—Civilian employment/population ratio by demographic characteristict 1954-88
[Percent;1 monthly data seasonally adjusted]
Black and other or black

White
Year or month

All
civilian
work- Total
ers

Total

Males

Females

Males

20
16-19 years Total
years and
over

16-19
years

20
years Total Total
and
over

Females

20
16-19 years Total
years and
over

20
16-19 years
years and
over

Black and other

1954
1955
1956
1957
1958
1959

55.5
56.7
57.5
57.1
55.4
56.0

55.2
56.5
57.3
56.8
55.3
55.9

81.5
82.2
82.7
81.8
79.2
79.9

49.9
52.0
54.1
52.4
47.6
48.1

84.0
84.7
85.0
84.1
81.8
82.8

31.4
33.0
34.2
34.2
33.6
34.0

36.4
37.0
38.9
38.2
35.0
34.8

31.1
32.7
33.8
33.9
33.5
34.0

58.0
58.7
59.5
59.3
56.7
57.5

76.5
77.6
78.4
77.2
72.5
73.8

52.4
52.7
52.2
48.0
42.0
41.4

79.2
80.4
81.3
80.5
76.0
77.6

41.9
42.2
43.0
43.7
42.8
43.2

24,7
26.4
28.0
26,5
22.8
20.3

43.7
43.9
44.7
45.5
45.0
45.7

I960
1961
1962
1963
1964
1965
1966
1967
1968 ..
1969

56.1
55.4
55.5
55.4
55.7
56.2
56.9
57.3
57.5
58.0

55.9
55.3
55.4
55.3
55.5
56.0
56.8
57.2
57.4
58.0

79.4
78.2
78.4
77.7
77.8
77.9
78.3
78.4
78.3
78.2

48.1
45.9
46.4
44.7
45.0
47.1
50.1
50.2
50.3
51.1

82.4
81.4
81.5
81.1
81.3
81.5
81.7
81.7
81.6
81.4

34.6
34.5
34.7
35.0
35.5
36.2
37.5
38.3
38.9
40.1

35.1
34.6
34.8
32.9
32.2
33.7
37.5
37.7
37.8
39.5

34.5
34.5
34.7
35.2
35.8
36.5
37.5
38.3
39.1
40.1

57.9
56.2
56.3
56.2
57.0
57.8
58.4
58.2
58.0
58.1

74.1
71.7
72.0
71.8
72.9
73.7
74.0
73.8
73.3
72.8

43.8
41.0
41,7
37,4
37,8
39,4
40.5
38,8
38.7
39.0

77.9
75.5
75.7
76.2
77.7
78.7
79.2
79.4
78.9
78.4

43.6
42.6
42.7
42.7
43.4
44.1
45.1
45.0
45.2
45.9

24.8
23.2
23.1
21.3
21.8
20.2
23.1
24.8
24.7
25.1

45.8
44.8
44.9
45.2
46.1
47.3
48.2
47.9
48.2
48.9

1970
1971
1972

57.4
56.6
57.0

57.5
56.8
57.4

76.8
75.7
76.0

49.6
49.2
51.5

80.1
79.0
79.0

40.3
39.9
40.7

39.5
38.6
41.3

40.4
40.1
40.6

56.8
54.9
54.1

70.9
68.1
67.3

35.5
31.8
32.4

76.8
74.2
73.2

44.9
43.9
43.3

22.4
20.2
19.9

48.2
47.3
46.7

1972
1973
1974
1975
1976
1977
1978
1979

57.0
57.8
57.8
56.1
56.8
57.9
59.3
59.9

57.4
58.2
58.3
56.7
57.5
58.6
60.0
60.6

76.0
76.5
75.9
73.0
73.4
74.1
75.0
75.1

51.5
54.3
54.4
50.6
51.5
54.4
56.3
55.7

79.0
79.2
78.6
75.7
76.0
76.5
77.2
77.3

40.7
41.8
42.4
42.0
43.2
44.5
46.3
47.5

41.3
43.6
44.3
42.5
44.2
45.9
48.5
49.4

40.6
41.6
42.2
41.9
43.1
44.4
46.1
47.3

53.7
54.5
53.5
50.1
50.8
51.4
53.6
53.8

66.8
67.5
65.8
60.6
60.6
61.4
63.3
63.4

31.6
32.8
31.4
26,3
25,8
26.4
28.5
28.7

73.0
73.7
71.9
66.5
66.8
67.5
69.1
69.1

43.0
43.8
43.5
41.6
42.8
43.3
45.8
46.0

19.2
22.0
20.9
20.2
19.2
18.5
22.1
22.4

46.5
47.2
46.9
44.9
46.4
47.0
49.3
49.3

1980
1981
1982
1983
1984
1985
1986
1987

59.2
59.0
57.8
57.9
59.5
60.1
60.7
61.5

60.0
60.0
58.8
58.9
60.5
61.0
61,5
62.3

73.4
72.8
70.6
70.4
72.1
72.3
72.3
72.7

53.4
51.3
47.0
47.4
49.1
49.9
49.6
49.9

75.6
75.1
73.0
72.6
74.3
74.3
74.3
74.7

47.8
48.3
48.1
48.5
49.8
50.7
51.7
52.8

47.9
46.2
44.6
44.5
47.0
47.1
47.9
49.0

47.8
48.5
48.4
48.9
50.0
51.0
52.0
53.1

52.3
51.3
49.4
49.5
52.3
53.4
54.1
55.6

60.4
59.1
56.0
56.3
59.2
60.0
60.6
62.0

27.0
24.6
20.3
20.4
23.9
26.3
26.5
28.5

65.8
64.5
61.4
61.6
64.1
64.6
65,1
66.4

45.7
45.1
44.2
44.1
46.7
48.1
48.8
50.3

21.0
19.7
17.7
17.0
20.1
23.1
23.8
25.8

49.1
48.5
47.5
47.4
49.8
50.9
51.6
53.0

1987: Jan
Feb
Mar
Apr
May
June

61.1
61.2
61.2
61.3
61.5
61.5

61.9
62.0
62.0
62.1
62.4
62.3

72.5
72.6
72.4
72.5
72.7
72.6

49.7
50.7
49.1
48.9
49.2
49.1

74.5
74.5
74.5
74.5
74.7
74.6

52.1
52.3
52.4
52.6
52.9
52.8

48.4
48.0
48.3
49.0
50.1
48.6

52.4
52.6
52.7
52.9
53.1
53.1

54.5
54.8
54.7
54.8
54.8
55.2

61.4
61.4
61.4
61.6
61.1
61.5

27.7
26.7
26.5
26.2
25.8
27.7

65.8
66.0
66.1
66.3
65.8
66.0

48.9
49.5
49.2
49.3
49.6
50.1

20.6
24.9
24.0
23.7
24.3
25.0

51.9
52.2
51.9
52.1
52.4
52.9

Julv
Aug
Sept
Oct
Nov
Dec

61.6
61.8
61.6
61.8
61.9
61.9

62.3
62.5
62.4
62.5
62.6
62.7

72.6
72.8
72.7
72.8
72.9
73.0

49,4
50.8
49.8
50.3
50.0
51.1

74.7
74.7
74.7
74.8
74.9
74.9

52.9
53.0
52.8
53.0
53.1
53.2

49.3
49.8
48.2
48.7
49.2
50.0

53.2
53.3
53.2
53.3
53.4
53.5

55.9
56.4
55.9
56.5
56.6
56.6

62.2
62.9
62.6
62.7
62.7
62.5

28.6
32.1
29.6
30.1
31.1
30.4

66.7
66.9
67.0
67.0
66.9
66.8

50.7
51.2
50.5
51.5
51.6
51.7

25.0
30.2
29.6
27.9
26.2
27.9

53.5
53.5
52.7
54.0
54.3
54.3

1988: Jan
Feb
Mar

62.1
62.2
62.0
62.3
61.9
62.3

62.8
63.0
62.9
63.2
62.8
63.2

73.0
73.4
73.0
73.4
73.0
73.4

52,2
52.2
50.0
50.6
50.2
53.0

74.8
75.2
75.0
75.4
75.0
75.1

53.4
53.5
53.6
53.7
53.5
53.8

50.2
50.5
48.2
48.9
48.8
52.4

53J
53.8
54.0
54.1
53.8
53.9

56.5
55.9
55.4
55.7
55.5
55.5

62.9
62.0
61.4
62.9
62.4
62.3

27.7
23.3
23.0
29.1
31.0
30.6

67.5
67.1
66.4
67.3
66.5
66.5

51.4
51.0
50.6
49.8
49.8
50.0

24,0
26.1
25.3
22.8
23.2
25.3

54.3
53.7
53.3
52.7
52.7
52.7

62.3
62.3
62.4
62.4
62.6

63.0
63.1
63.1
63.2
63.4

73.4
73.2
73.3
73.2
73.3

51.5
52.7
51.4
50.7
53.2

75.2
75.0
75.1
75.1
75.0

53.5
53.8
53.8
54.0
54.3

51.0
49.3
51.1
50.8
50.0

53.7
54.1
54.0
54.2
54.6

56.8
56.7
56.7
56.9
56.9

62.7
63.3
63.4
63.3
62.9

31.8
30.3
30.3
30.9
31.6

66.8
67.6
67.7
67.5
66.9

52.0
51.4
51.3
51.7
52.1

26.1
27.1
27.2
26.2
25.9

54.8
54.0
53.8
54.4
54.9

Black

f,=
June
July
Aug

Sept
Oct
Nov

1
Civilian employment as percent of civilian noninstitutional population in group specified.
Note.—Data relate to persons 16 years of age and over.
See footnote 6 and Note, Table B-32.
Source: Department of Labor, Bureau of Labor Statistics.




351

TABLE B-39.—Unemployment rate, 2948-88
[Percent; monthly data seasonally adjusted]

Year or
month

Unemployment
UnemployFemales
Males
All
ment
rate. civilian
all
16- 20
16- 20
work- work- Total 19 years Total 19 years
1
and
and
ers
ers
years over
years over

rate, civilian workers 2
Both
sexes
1619
years

Black
White and Black
other

Experienced
wage
and
salary
workers

Mar- Women
ried
who
men, mainspouse tain
presfamient 3
lies

3.8
5.9

1948
1949

3.6
5.9

9.8
14.3

3.2
5.4

4.1
6.0

8.3
12.3

3.6
5.3

9.2
13.4

3.5
5.6

5.9
8.9

4.3
6.8

3.5

1950
1951
1952
1953
1954
1955
1956. .
1957
1958 . ..
1959

5.2
3.2
2.9
2.8
5.4
4.3
4.0
4.2
6.6
5.3

5.3
3.3
3.0
2.9
5.5
4.4
4.1
4.3
6.8
5.5

5.1
2.8
2.8
2.8
5.3
4.2
3.8
4.1
6.8
5.2

12.7
8.1
8.9
7.9
13.5
11.6
11.1
12.4
17.1
15.3

4.7
2.5
2.4
2.5
4.9
3.8
3.4
3.6
6,2
4.7

5.7
4.4
3.6
3.3
6.0
4.9
4.8
4.7
6.8
5.9

11.4
8.3
8.0
7.2
11.4
10.2
11.2
10.6
14.3
13.5

5.1
4.0
3.2
2.9
5.5
4.4
4.2
4.1
6.1
5.2

12.2
8.2
8.5
7.6
12.6
11.0
11.1
11.6
15.9
14.6

4.9
3.1
2.8
2.7
5.0
3.9
3.6
3.8
6.1
4.8

9.0
5.3
5.4
4.5
9.9
8.7
8.3
7.9
12.6
10.7

6.0
37
3.4
3.2
6.2
4.8
44
4.6
7.3
5.7

4.6
15
1.4
1.7
4.0
2.6
23
2.8
5.1
3.6

1960
1961 ...
1962
1963
1964
1965
1966
1967
1968
1969

5.4
6.5
5.4
5.5
5.0
4.4
3.7
3.7
3.5
3.4

5.5
6.7
5.5
5.7
5.2
4.5
3.8
3.8
3.6
3.5

5.4
6.4
5.2
5.2
4.6
4.0
3.2
3.1
2.9
2.8

15.3
17.1
14.7
17.2
15.8
14.1
11.7
12.3
11.6
11.4

4.7
5.7
4.6
4.5
3.9
3.2
2.5
2.3
2.2
2.1

5.9
7.2
6.2
6.5
6.2
5.5
4.8
5.2
4.8
4.7

13.9
16.3
14.6
17.2
16.6
15.7
14.1
13.5
14.0
13.3

5.1
6.3
5.4
5.4
5.2
4.5
3.8
4.2
3.8
3.7

14.7
16.8
14.7
17.2
16.2
14.8
12.8
12.9
12.7
12.2

5.0
6.0
4.9
5.0
4.6
4.1
3.4
3.4
3.2
3.1

10.2
12.4
10.9
10.8
9.6
8.1
7.3
7.4
6,7
6.4

5.7
6.8
5.6
5.6
5.0
4.3
3.5
3.6
3.4
3.3

3.7
4.6
3.6
3.4
2.8
2.4
1.9
1.8
1.6
1.5

4.9
4.4
4.4

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

4.8
5.8
5.5
4.8
5.5
8.3
7.6
6.9
6.0
5.8

4.9
5.9
5.6
4.9
5.6
8.5
7.7
7.1
6.1
5.8

4.4
5.3
5.0
4.2
4.9
7.9
7.1
6.3
5.3
5.1

15.0
16.6
15.9
13.9
15.6
20.1
19.2
17.3
15.8
15.9

3.5
4.4
4.0
3.3
3.8
6.8
5.9
5.2
4.3
4.2

5.9
6.9
6.6
6.0
6.7
9.3
8.6
8.2
7.2
6.8

15.6
17.2
16.7
15.3
16.6
19.7
18.7
18.3
17.1
16.4

4.8
5.7
5.4
4.9
5.5
8.0
7.4
7.0
6.0
5.7

15.3
16.9
16.2
14.5
16.0
19.9
19.0
17.8
16.4
16.1

4.5
5.4
5.1
4.3
5.0
7.8
7.0
6.2
5.2
5.1

8.2
9.9 ............
10.0
9.0 9.4
9.9 10.5
13.8 14.8
13.1 14.0
13,1 14.0
11.9 12.8
11.3 12.3

4.8
5.7
5.3
4.5
5.3
8.2
7.3
6.6
• 5.6
5.5

2.6
3.2
2.8
2.3
2.7
5.1
4.2
3.6
2.8
2.8

5.4
7,3
7.2
7.1
7.0
10.0
10.1
9.4
8.5
8.3

1980
1981.
1982
1983
1984
1985
1986
1987

7.0
7.5
9.5
9.5
7.4
7.1
6.9
6.1

7.1
7.6
9.7
9.6
7.5
7.2
7.0
6.2

6.9
7.4
9.9
9.9
7.4
7.0
6.9
6.2

18.3
20.1
24.4
23.3
19.6
19.5
19.0
17.8

5.9
6.3
8.8
8.9
6.6
6.2
6.1
5.4

7.4
7.9
9.4
9.2
7.6
7.4
7.1
6.2

17.2
19.0
21.9
21.3
18.0
17.6
17.6
15.9

6.4
6.8
8.3
8.1
6.8
6.6
6.2
5.4

17.8
19.6
23.2
22.4
18.9
18.6
18.3
16.9

6.3
6.7
8.6
8.4
6.5
6.2
6.0
5.3

13,1
14.2
17.3
17.8
14.4
13.7
13.1
11.6

14.3
15.6
18.9
19.5
15.9
15.1
14.5
13.0

6.9
7.3
9.3
9.2
7.1
6.8
6.6
5.8

4.2
4.3
6.5
6.5
4.6
4.3
4.4
3.9

9.2
10.4
11.7
12.2
10.3
10.4
9.8
9.2

1987: Jan
Feb
Mar

6.6
6.5
6.4
6.2
6.2
6.0

6.7
6.6
6.5
6.3
6.3
6.1

6.7
6.6
6.6
6.4
6.4
6.2

18.5
18.5
19.0
18.7
19.6
16.4

6.0
5.8
5.7
5.6
5.6
5.5

6.6
6.6
6.5
6.3
6.2
6.0

16.8
17.1
16.6
15.9

15.6
15.5

5.9
5.8
5.7
5.5
5.4
5.3

17.7
17.9
17.8
17.3
17.6
16.0

5.8
5.7
5.6
5.5
5.4
5.3

12.5
12.6
12.4
11.8
12.1
11.5

14.1
14.0
13.9
13.0
13.7
12.8

6.3
6.2
6.1
5.9
5.9
5.8

4.2
4.1
4.1
4.1

a

9.8
9.6
9.7
9.4
9.5
9.5

July
Aug

6.0
5.9
5.8
5.9
5.8
5.7

6.0
6.0
5.9
6.0
5.9
5,8

6.0
6.1
5.8
5.9
5.8
5.7

15.9
17,8
17.3
17.4
17.2
17.2

5.4
5.2
5.0
5.1
5.0
4.9

6.1
6.0
6.1
6.1
6.0
5.9

15.7
14.4
15.4
16.9
16.0
14.8

5.4
5.3
5.4
5.2
5.2
5.2

15.8
16.2
16.4
17.2
16.6
16.1

5.2
5.2
5.1
5.2
5.1
4.9

11.4
11.3
10.9
10.8
11.0
10.9

12.7
12.4
12.3
12.1
12.2
12.2

5.8
5.7
5.5
5.5
5.5
5.4

.3.8
3.7
3.7
3.7
.3.5
3.4

9.3
9.0
8.8
8.9
8.5
8.4

1988: Jan
Feb
Mar
June,...

5.7
5.6
5.5
5.4
5.5
5.2

5.8
5.7
5.6
5.4
5.6
5.3

5.8
5.6
5.7
5.3
5.6
5.2

16.4
15.6
17.8
15.8
16.2
14.7

5.1
4.9
4.9
4.6
4.9
4.6

5.9
5.9
5.5
5.6
5.6
5.4

15.6
15.1
15.2
16.0
15.0
12.4

5.1
5.2
4.8
4.8
4.9
4.9

16.0
15.4
16.5
15.9
15.6
13.6

5.0
4.8
4.7
4.6
4.7
4.5

10.9
11.3
11.5
10.7
11.3
10.3

12.2
12.6
12.8
12.2
12.4
11.5

5.5
5.3
5.2
5.0
5.4
5,0

3.6
3.4
3.4
3.0
3.3
3.1

8.9
8.3
7.5
8.7
8.4
7.8

July
Aug
Sept....
Oct
Nov

5.4
5.5
5.3
5.2
5,3

5.4
5.6
5.4
5.3
5.4

5.3
5.6
5.3
5.4
5.4

16.6
15.9
16.7
16.9
14.5

4.5
4.9
4.5
4.6
4.8

5.7
5.6
5.5
5.3
5.3

13.6
15.8
14.7
12.8
13.1

5.1
4.8
4.8
4.7
4.8

15.2
15.8
15.7
14.9
13.9

4.7
4.9
4.8
4.6
4.6

10.0
10.0
9.4
9.6
10.0

11.4
11.3
10.8
11.0
11.2

5.1
5.3
5.1
5.0
5.1

3.0
3.4
3-1
3.1
3.4

8.6
7.4
8.1
7.9
7.6

flfay'Z
June....

Sept....
Oct
Nov
Dec

1
Unemployed as
2
Unemployed as
3

percent of labor force including resident Armed Forces.
percent of civilian labor force in group specified.
Data for 1949 and 1951-54 are for April; 1950, for March.
Note.—Data relate to persons 16 years of age and over.
See footnote 6 and Note, Table B-32.
Source: Department of Labor, Bureau of Labor Statistics.




352

TABLE B-40.—Civilian unemployment rate by demographic characteristic, 1948-88
[Percent;1 monthly data seasonally adjusted]

Year or month

White
Black and other or black
All
Males
Females
Females
Males
civilian
20
20 Total
20
20
work- Total
Total 16-19 years Total 16-19 years
ers
Total 16-19 years Total 16-19 years
years and
years and
years and
years and
over
over
over
over
Black and other

1948.
1949

3.8
5.9

3.5
5.6

3.4
5.6

3.8
5.7

5.9
8.9

5.8
9.6

6.1
7.9

1950
1951
1952
1953
1954!
1955
1956.
1957
1958.
1959

5.3
3.3
3.0
2.9
5.5
4.4
4.1
4.3
6.8
5.5

4.9
3.1
2.8
2.7
5.0
3.9
3.6
3.8
6.1
4.8

4.7
2.6
2.5
2.5
4.8
3.7
3.4
3.6
6.1
4.6

5.3
42

13.4
11.3
10.5
11.5
15.7
14.0

4.4
3.3
3.0
3.2
5.5
4.1

31
5.5
4.3
4.2
4.3
6.2
5.3

10.4
9.1
9.7
9.5
12.7
12.0

5.1
3.9
3.7
3.8
5.6
4.7

9.0
5.3
5.4
4.5
9.9
8.7
8.3
7.9
12.6
10.7

9.4
4.9
5.2
4.8
10.3
8.8
7.9
8.3
13.7
11.5

14.4
13.4
15.0
18.4
26.8
25.2

9.9
8.4
7.4
7.6
12.7
10.5

8.4
61
•>7
41
9.2
8.5
8,9
7.3
10.8
9.4

20.6
19.2
22.8
20.2
28.4
27.7

8.4
7.7
7.8
6.4
9.5
8.3

1960
1961.
1962
1963.
1964
1965.
1966
1967.
1968
1969

5.5
6.7
5.5
5.7
5.2
4.5
3.8
3.8
3.6
3.5

5.0
6.0
4.9
5.0
4.6
4.1
3.4
3.4
3.2
3.1

4.8
5.7
4.6
4.7
4.1
3.6
2.8
2.7
2.6
2.5

14.0
15.7
13.7
15.9
14.7
12.9
10.5
10.7
10.1
10.0

4.2
5.1
4.0
3.9
3.4
2.9
2.2
2.1
2.0
1.9

5.3
6.5
5.5
5.8
5.5
5.0
4.3
4.6
4.3
4.2

12.7
14.8
12.8
15.1
14.9
14.0
12.1
11.5
12.1
11.5

4.6
5.7
4.7
4.8
4.6
4.0
3.3
3.8
3.4
3.4

10.2
12.4
10.9
10.8
9.6
8.1
7.3
7.4
6.7
6.4

10.7
12.8
10.9
10.5
8.9
7.4
6.3
6.0
5.6
5.3

24.0
26.8
22.0
27.3
24.3
23.3
21.3
23.9
22.1
21.4

9.6 9.4
11.7 11.9
10.0 11.0
9.2 11.2
7.7 10.7
6.0 9.2
4.9 8.7
4.3 9.1
3.9 8.3
3.7 7.8

24.8
29.2
30.2
34.7
31.6
31.7
31.3
29.6
28.7
27.6

8.3
10.6
9.6
9.4
9.0
7.5
6.6
7.1
6.3
5.8

1970.
1971
1972

4.9
5.9
5.6

4.5
5.4
5.1

4.0
4.9
4.5

13.7
15.1
14.2

3.2
4.0
3.6

5.4
6.3
5.9

13.4
15.1
14.2

4.4
5.3
4.9

8.2
9.9
10.0

7.3
9.1
8.9

25.0
28.8
29.7

9.3
10.9
11.4

34.5
35.4
38.4

6.9
8.7
8.8

.".'..

•n

5.6
7.3
6.9

Black

1972
1973
1974
1975.
1976
1977
1978
1979

5.6
4.9
5.6
8.5
7.7
7.1
6.1
5.8

5.1 4.5
4.3 3.8
5.0 4.4
7.8 7.2
7.0 6.4
6.2 5.5
5.2 • 4.6
5.1 4.5

14.2
12.3
13.5
18.3
17.3
15,0
13.5
13.9

3.6
3.0
3.5
6.2
5.4
4.7
3.7
3.6

5.9
5.3
6.1
8.6
7.9
7.3
6.2
5.9

14.2
13.0
14.5
17.4
16.4
15.9
14.4
14.0

4.9
4.3
5.1
7.5
6.8
6.2
5.2
5.0

10.4
9.4
10.5
14.8
14.0
14.0
12.8
12.3

9.3
8.0
9.8
14.8
13.7
13.3
11.8
11.4

31.7
27.8
33.1
38.1
37.5
39.2
36.7
34.2

7.0
6.0
7.4
12.5
11.4
10.7
9.3
9.3

11.8
11.1
11.3
14.8
14.3
14.9
13.8
13.3

40.5
36.1
37.4
41.0
41.6
43.4
40.8
39.1

9.0
8.6
8.8
12.2
11.7
12.3
11.2
10.9

1980
1981
1982
1983
1984
1985
1986
1987

7.1
7.6
9.7
9.6
7.5
7.2
7.0
6.2

6.3
6.7
8.6
8.4
6.5
6.2
6.0
5.3

6.1
6.5
8.8
8.8
6.4
6.1
6.0
5.4

16.2
17.9
21.7
20.2
16.8
16.5
16.3
15.5

5.3
5.6
7.8
7.9
5.7
5.4
5.3
4.8

6.5
6.9
8.3
7.9
6.5
6.4
6.1
5.2

14.8
16.6
19.0
18.3
15.2
14.8
14.9
13.4

5.6
5.9
7.3
6.9
5.8
5.7
5.4
4.6

14.3
15,6
18.9
19.5
15.9
15.1
14.5
13.0

14.5
15.7
20.1
20.3
16.4
15.3
14.8
12.7

37.5
40.7
48.9
48.8
42.7
41.0
39.3
34.4

12.4
13.5
17.8
18.1
14.3
13.2
12.9
11.1

14.0
15.6
17.6
18.6
15.4
14.9
14.2
13.2

39.8
42.2
47.1
48.2
42.6
39.2
39.2
34.9

11.9
13.4
15.4
16.5
13.5
13.1
12.4
11.6

6.7
6.6
6.5
6.3
6.3
6.1

5.8
5.7
5.6
5.5
5.4
5.3

5.9
5.8
5.8
5.6
5.6
5.5

16.1
16.0
16.8
16.3
17.0
14.8

5.2
5.1
5.0
4.9
4.8
4.9

5.6
5.5
5.4
5.3
5.2
5.1

14.0
14.1
13.7
13.3
13.3
13.0

5.0
4.8
4.7
4.6
4.5
4.4

14.1
14.0
13.9
13.0
13.7
12.8

13.9
13.7
13.3
12.9
14.1
12.7

36.5
37.9
36.1
37.8
38.3
31.4

12.1
11.9
11.6
11.0
12.3
11.4

14.4
14.3
14.4
13.2
13.2
12.9

42.3
38.0
38.0
36.3
36.6
35.4

12.6
12.6
12.7
11.6
11.6
11.3

6.0
6.0
5.9
6.0
5.9
5.8
5.8
5.7
5.6
5.4
5.6
5.3

5.2
5.2
5.1
5.2
5.1
4.9
5.0
4.8
4.7
4.6
4.7
4.5

5.2
5.2
5.1
5.3
5.1
4.9
5.0
4.6
4.9
4.6
4.8
4.5

13.5
15.2
15.1
15.1
14.8
14.9
14.4
122
15.7
14.5
13.8
12.8

4.7
4.6
4.4
4.6
4.4
4.3
4.4
4.1
4.2
4.0
4.2
4.0

5.1
5.1
5.1
5.0
5.0
4.9
4.9
5.1
4.5
4.6
4.6
4.6

13.1
12.9
13.4
13.8
13.3
12.3
13.6
12.7
12.4
13.7
12.4
11.1

4.5
4.4
4.5
4.3
4.4
4.4
4.2
4.5
3.9
3.9
4.0
4.0

12.7
12.4
12.3
12.1
12.2
12.2
12.2
12.6
12.8
12.2
12.4
11.5

12.6
12.5
11.7
11.5
11.8
11.9
11.8
13.3
13.1
11.7
12.5
11.5

32.4
33.7
31.5
32.5
32.2
33.5
35.1
42.0
39.0
27.6
33.3
30.4

11.2
10.7
10.1
9.8
10.2
10.1
10.1
11.3
11.4
10.6
10.8
10.0

12.8
12.4
13.0
12.8
12.5
12.5
12.6
12.0
12.5
12.7
12.3
11.6

33.1
27.1
30.0
35.2
35.8
33.4
34.9
34.7
35.0
35.5
36.6
25.9

11.4
11.3
11.7
11.0
10.8
10.9
11.1
10.4
10.9
11.3
10.6
10.7

5.4
5.6
5.4
5.3
5.4

4.7
4.9
4.8
4.6
4.6

4.6
4.9
4.8
4.8
4.8

14.6
13.8
15.0
14.8
12.2

3.9
4.3
4.1
4.1
4.3

4.8
4.8
4.8
4.4
4.5

11.1
13.8
12.5
11.0
11.2

4.3
4.1
4.2
3.9
4.0

11.4
11.3
10.8
11.0
11.2

11.1
11.2
10.5
11.3
11.5

30.4
32.2
31.7
33.5
32.4

9.5 11.8
9.6 11.4
8.8 11.0
9.4 10.7
9.8 11.0

31.8
32.7
32.2
26.5
30.4

10.4
9.9
9.5
9.7
9.7

1987: Jan
Feb

Mar

fci:::::
June
July
Auc
Sept
Oct
Nov
Dec
1988- Jan
Feb
Mar

May
June
July
Auc
Sept
Oct
Nov

"'""'

1
Unemployed as percent of civilian labor force in group specified.
Note.—See footnote 6 and Note, Table B-32.
Source: Department of Labor, Bureau of Labor Statistics.




353

TABLE B-41.—Unemployment by duration and reason, 1947-88
[Monthly data seasonally adjusted1]

Year or month

UnemployLess
ment than 5
weeks

Duration of unemployment
Aver27
age
5-14 15-26 weeks (mean) Median
duraweeks weeks and
duration
over . tion

1947... .
1948
1949

2,311
2,276
3,637

1950
1951
1952,
1953
1954
1955
1956
1957
1958
1959
I960
1961
1962
1963
1964
1965
19662
1967
1968
1969.
1970..
1971
1972
1973
1974
1975
1976
1977.
1978
1979
1980
1981
1982
1983
1984
1985..
1986
1987....
1987: Jan
Feb
Mar
Apr
May
June
July
Aug.
Sept
Oct
Dec
1988: Jan
Feb ,..
Mar
Apr
June
July
Aug
Sept
Oct.
Nov....

3,288
2,055
1,883
1,834
3^32
2,852
2,750
2,859
4,602
3,740
3t852
4,714
3,911
4,070
3,786
3,366
2,875
2,975
2,817
2,832
4,093
5,016
4,882
4,365
5,156
7,929
7,406
6,991
6,202
6,137
7,637
8,273
10,678
10,717
8,539
8,312
8,237
7,425
7,964
7,886
7,791
7,557
7,573
7,308
7,251
7,256
7,091
7,177
7,090
6,978
7,046
6,938
6,801
6,610
6,783
6,455
6,625
6,851
6,596
6,491
6,595

May

::::::::;;

704
234
1,210
193
669
1,300
428
1,194
1,756
1,450
425
1,055
574
1,177
166
148
516
1,135
1,142
132
482
495
1,605 1,116
366
815
1,335
1,412
301
805
321
891
1,408
785
1,396
1,753
469
1,114
1,585
1,719
503
1,176
728
1,806 1,376
534
1,663 1,134
535
1,231
1,751
491
1,697 1,117
404
983
1,628
287
779
1,573
271
1,634
893
810
1,594
256
827
1,629
242
2,139 1,290
428
2,245 lisSS
668
2,242 1,472
601
2,224 1,314
483
574
2,604 1,597
2,940 2,484 1,303
2,844 2,196 1,018
2,919 2,132
913
2,865 1,923
766
2,950 1,946
706
3,295 2,470 1,052
3,449 2,539 1,122
3,883 3,311
1,708
3,570 . 2,937 1,652
1,104
3,350 2,451
3,498 2,509 1,025.
3,448 2,557 1,045
3,246 2,196
943
3,365 2,489 1,023
3,343 2,444 1,004
944
3,352 2,411
984
3,195 2,256
974
3,308 2,165
3,138
973
2,151
945
3,186 2,144
3,203 2,142
834
3,220 1,949
917
844
3,223 2,093
3,218 2,029
899
3,229 1,968
892
3,089 2,263
839
3,084 2,145
841
887
3,009 2,101
3,125 1,956
725
3,075 2,110 • 784
727
3,066 1,890
838
2,965 2,078
3,197 1,957
859
3,139
789
1,823
3,062 1,814
778
1,924
3,153
776

1
Because
2

164
116
256
357
137
84
78
317
336
232
239
667
571
454
804
585
553
482
351
239
177
156
133
235
519
566
343
381
1,203
1,348
1,028
648
535
820
1,162
1,776
2,559
1,634
1,280
1,187
1,040
1,164
1,125
1,111
1,076
1,093
1,056
975
1,062
987
957
935
899
894
899
835
816
825
785
791
817
807
773
711

8.6
10.0
12.1
9.7
8.4
8.0
11.8
13.0
11.3
10.5
13.9
14.4
12.8
15.6
14.7
14.0
13.3
11.8
10.4
8.7
8.4
7.8
8.6
11.3
12.0
10.0
9.8
14.2
15.8
14.3
11.9
10.8
11.9
13.7
15.6
20.0
18.2
15.6
15.0
14.5
15.0
14.8
14.9
14.8
14.8
14.7
14.2
14.3
14.2
14.1
14.0
14.2
14.4
14.4
13.7
13,4
13.8
12.9
13.6
13.7
13.7
13.5
12.5

Job
losers

Job
leavers

Reentrants

New
entrants

Thousands of persons 16
years of age and over

Weeks

Thousands of persons 16
years of age and over

Reason for unemployment

4.5
4.4
4.9
6.3
6.2
5.2
5.2
8.4
8.2
7.0
5.9
5.4
6.5
6.9
8.7
10.1
7.9
6.8
6.9
6.5
7.0
6.7
6.7
6.9
6.6
6.6
6.6
6.4
5.8
6.2
e:i
6.0
6.4
6.4
6.6
5.6
5.9
6.0
6.3
5.9
5.5
5.6
5.5

1,229
1,070
1,017
1,811
2,323
2,108
1,694
2,242
4,386
3,679
3,166
2,585
2,635
3,947
4,267
6,268
6,258
4,421
4,139
4,033
3,566
3,971
3,835
3,791
3,705
3,612
3,554

3,529
3,389
3,313
3,388
3,307
3,200
3,209
3,207
3,139
2,916
3,236
3,059
3,087
3,138
3,087
2,909
3,037

438
431
436
550
590
641
683
768
827
903
909
874
880
891
923
840
830
823
877
1,015
965
909
1,033
996
955
931
959
989
992
981
960
926
946
1,082
961
1,075
993
926
944
904
997
994
986
948

945
909
965
1,228
1,472
1,456
1,340
1,463
1,892
1,928
1,963
1,857
1,806
1,927
2,102
2,384
2,412
2,184
2,256
2,160
1,974
2,059
2,038
2,078
1,965
1,995
1,980
1,930
1,969
1,908
1,845
1,974
1,945
1,917
1,951
1,756
1,784
1,789
1,723
1,901
1,869
1,761
1,764
1,765

396
407
413
504
630
677
649
681
823
895
953
885
817
872
981
1,185
1,216
1,110
1,039
1,029
920
1,048
1,007
952
918
999
854
844
855
882
914
855
909
885
864
887
915
807
777
776
793
745
728
805

of independent seasonal adjustment of the various series, detail will not add to totals.
Data for 1967 by reason for unemployment are not strictly comparable with those for later years and the total by reason is not
equal to total unemployment.
Note.—See footnote 6 and Note, Table 6-32.
Source: Department of Labor, Bureau of Labor Statistics.




354

TABLE B-42.—Unemployment insurance programs, selected data, 1955-88
All programs

Year or month

Covered
employment 1

State programs

Insured
Total
unemploy- benefits
Insured
paid
ment
unem(millions ployment
(weekly
aver-2 3
24
dollars)
age)

Thousands

1955
1956.
1957
1958
1959
1960
1961
1962
1963
1964
1965 ... .
1966
1967
1968
1969
1970
1971 . .
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987

1,399
40,018
1,323
42,751
1,571
43,436
44,411
2,773
45,728 ' 1,860
2,071
46,334
2,994
46,266
1,946
47,776
7
1,973
48,434
1,753
49,637
1,450
51,580
1,129
54,739
1,270
56,342
1,187
57,977
1,177
59,999
2,070
59,526
2,608
59,375
2,192
66,458
1,793
69,897
2,558
72,451
4,937
71,037
3,846
73,459
3,308
76,419
2,645
88,804
2,592
92,062
3,837
92,659
3,410
93,300
4,594
91,628
3,775
91,898
2,561
96,474
2,693
99,186
2,746
101,099
2,401
898,757

1,560.2
1,540.6
1,913.0
4,290.6
2,854.3
3,022.8
4,358.1
3,145.1
3,025.9
2,749.2
2,360.4
1,890.9
2,221.5
2,191.0
2,298.6
4,209.3
6,154.0
5,491.1
4,517.3
6,933.9
16,802.4
12,344.8
10,998.9
9,006.9
9,401.3
16,175.4
15,287.1
23,774.8
20,206.2
13,109.6
14,495.1
15,892.1
14,532.0

1987: Jan
Feb
Mar
Apr
IVTay
June
July

3,276
3,155
2,933
2,526
2,216
2,108
. 2,210
2,030
1,800
1,759
1,931
2,322
2,870
2,775
2,536
2,208
1,949
1,877
2,044
1,905
1,722
1,667

1,576.4
1,556.2
1,659.0
1,421.9
1,118.7
1,153.8
1,167.8
1,048.5
983.3
892.4
895.3
1,239.6
1,362.7
1,473.8
1,574.3
1,165.9
1,042.9
1,065.9
989.7
1,122.8
926.5
841.9

.

Aug . .
Sept

Oct
Nov
Dec
1988- Jan
Feb
Mar
Apr
May
June
July
Aue
Sept. 1
Oct
Nov"

Initial
claims

Exhaustions 5

Weekly average; thousands
226
1,265
227
1,215
270
1,446
369
2,510
277
1,684
331
1,908
350
2,290
302
1,783
7
7
298
1,806
268
1,605
232
1,328
203
1,061
226
1,205
201
1,111
200
1,101
296
1,805
295
2,150
261
1,848
247
1,632
363
2,262
478
3,986
386
2,991
375
2,655
346
2,359
2,434
388
488
3,350
3,047
460
583
4,061
438
3,396
377
2,476
396
2,611
378
2,650
328
2,332
2,523
2,470
2,439
2,367
2,321
2,297
2,273
2,223
2,102
2,035
2,037
2,090
2,242
2,208
2,140
2,087
2,064
2,064
2,096
2,098
2,015
1,934
1,955

363
361
342
334
333
331
329
307
289
293
303
317
356
327
308
302
313
302
328
306
289
288
294

Insured
imarnnlnif
unemployment as
percent

of

covered
employment

Benefits paid
Average
weekly
check
dollars)* (dollars) 6
Total
(millions

25
20
23
50
33
31
46
32
30
26
21
15
17
16
16
25
39
35
29
37
81
63
55
39
39
59
57
80
80
50
50
52
46

3.5
3.2
3.6
6.4
4.4
4.8
5.6
4.4
4.3
3.8
3.0
2.3
2.5
2.2
2.1
3.4
4.1
3.5
2.7
3.5
6.0
4.6
3.9
3.3
2.9
3.9
3.5
4.6
3.9
2.8
2.9
2.8
2.4

1,350.3
1,380.7
1,733.9
3,512.7
2,279.0
2,726.7
3,422.7
2,675.4
2,774.7
2,522.1
2,166.0
1,771.3
2,092.3
2,031.6
2,127.9
3,848.5
4,957.0
4,471.0
4,007.6
5,974.9
11,754.7
8,974.5
8,357.2
7,717.2
8,612.9
13,761.1
13,262.1
20,649.5
17,762.8
12,594.7
13,977.8
15,402.8
14,260.9

25.04
27.02
28.17
30.58
. 30.41
32.87
33.80
34.56
35.27
35.92
37.19
39.75
41.25
43.43
46.17
50.34
54.02
56.76
59.00
64.25
70.23
75.16
78.79
83.67
89.67
98.95
106.70
119.37
123.59
123.47
128.23
135.72
140.58

52
52
53
58
49
47
51
39
39
38
35
42
40
41
43
44
41
39
39
37
33
32

2.7
2.6
2.6
2.5
2.4
2.4
2.4
2.3
2.2
2.1
2.1
2.2
2.3
2.3
2.2
2.1
2.1
2.1
2.1
2.1
2.0
1.9
2.0

1,523.7
1,499.7
1,601.7
1,379.4
1,084.4
1,120.7
1,135.8
1,019.2
954.7
865.7
869.8
1,206.4
1,337.6
1,445.2
1,542.8
1,140.6
1,016.6
1,034.5
961.9
1,093.4
903.5
820.2

139.11
140.80
140.91
140.77
140.64
140.47
139.24
140.09
140.27
141.58
141.13
142.50
145.06
147.40
147.17
145.74
145.05
143.28
142.56
137.79
145.19
146.06

E (Federal employee, effective January 1955), and RRB (Railroad Retirement Board) programs.
Mober 1958, also includes the UCX program (unemployment compensation for ex-servicemen).
SincltTdes State, UCFE, RR, UCX, UCV (unemployment compensation for veterans, October 1952-January I960) and SRA
(Servicemen's Readjustment Act, September 1944-September 1951 programs. Also includes Federal and State extended benefit
programs. Does not include FSB (Federal supplemental benefits), SUA (special unemployment assistance), and Federal Supplemental
Compensation programs. 1988 monthly data exclude railroad, for which data are not yet available.
3
Covered workers who have completed at least 1 week of unemployment.
4
Annual data are net amounts and monthly data are gross amounts.
5
Individuals receiving final payments in benefit year.
7
8

Programs include Puerto Rican sugarcane workers for initial claims and insured unemployment beginning Julv 1963.
Latest data available for all programs combined. Workers covered by State programs account for about 97 percent of wage and
salary earners.
Source: Department of Labor, Employment and Training Administration.




355

TABLE B-43.—Employees on nonagriculturalpayrolls, by major industry, 1946-88
[Thousands of persons; monthly data seasonally adjusted]
Goods-producing industries
Manufacturing

Total

Year or month

Total

1946....
1947
1948
1949
1950 ..
1951
1952
1953
1954
1955
1956 .
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980....
1981
1982
1983
1984
1985..
1986
1987... .
1987: Jan
Feb
Mar
Apr
May
June
July
Sept
Oct
Nov
Dec
1988: Jan
Feb
Mar
Apr
May...
June
July
Aug
Sept
Oct
Nov "

Aug::::

..
..

...

.

.. .

:
..
..

. ...

41,652
43,857
44,866
43,754
45,197
47,819
48,793
50,202
48,990
50,641
52,369
52,853
51,324
53,268
54,189
53,999
55,549
56,653
58,283
60,765
63,901
65,803
67,897
70,384
70,880
71,214
73,675
76,790
78,265
76,945
79,382
82,471
86,697
89,823
90,406
91,156
89,566
90,200
94,496
97,519
99,525
102,310
100,795
101,016
101,260
101,615
101,829
102,078
102,430
102,672
102,906
103,371
103,678
104,001
104,262
104,729
105,020
105,281
105,489
106,057
106,271
106,425
106,737
106,975
107,438

See next page for continuation of table.




356

17,248
18,509
18,774
17,565
18,506
19,959
20,198
21,074
19,751
20,513
21,104
20,964
19,513
20,411
20,434
19,857
20,451
20,640
21,005
21,926
23,158
23,308
23,737
24,361
23,578
22,935
23,668
24,893
24,794
22,600
23,352
24,346
25,585
26,461
25,658
25,497
23,813
23,334
24,727
24,859
24,558
24,784
24,501
24,533
24,536
24,596
24,653
24,684
24,788
24,851
24,902
25,025
25,123
25,201
25,180
25,271
25,330
25,435
25,466
25,592
25,663
25,639
25,648
25,741
25,860

Mining

862
955
994
930
901
929
898
866
791
792
822
828
751
732
712
672
650
635
634
632
627
613
606
619
623
609
628
642
697
752
779
813
851
958
1,027
1,139
1,128
952
966
927
777
721
704
703
705
711
716
719
722
728
734
740
736
735
728
731
733
737
739
740
740
739
734
729
722

Construction

1,683
2,009
. 2,198
2,194
2,364
2,637
2,668
2,659
2,646
2,839
3,039
2,962
2,817
3,004
2,926
2,859
2,948
3,010
3,097
3,232
3,317
3,248
3,350
3,575
3,588
3,704
3,889
4,097
4,020
3,525
3,576
3,851
4,229
4,463
4,346
4,188
3,905
3,948
4,383
4,673
4,816
4,998
4,927
4,928
4,918
4,943
4,967
4,983
4,997
5,012
5,012
5,060
5,090
5,118
5,083
5,150
5,192
5,238
5,237
5,308
5,330
5,340
5,365
5,364
5,419

Total
14,703
15,545
15,582
14,441
15,241
16,393
16,632
17,549
16,314
16,882
17,243
17,174
15,945
16,675
16,796
16,326
16,853
16,995
17,274
18,062
19,214
19,447
19,781
20,167
19,367
18,623
19,151
20,154
20,077
18,323
18,997
19,682
20,505
21,040
20,285
20,170
18,781
18,434
19,378
19,260
18,965
19,065
18,870
18,902
18,913
18,942
18,970
18,982
19,069
19,111
19,156
19,225
19,297
19,348
19,369
19,390
19,405
19,460
19,490
19,544
19,593
19,560
19,549
19,648
19,719

Durable Nonduragoods ble goods
7,742
8,385
8,326
7,489
8,094
9,089
9,349
10,110
9,129
'9,541
9,833
9,855
8,829
9,373
9,459
9,070
9,480
9,616
9,816
10,405
11,282
11,439
11,626
11,895
11,208
10,636
11,049
11,891
11,925
10,688
11,077
11,597
12,274
12,760
12,187
12,109
11,039
10,732
11,505
11,490
11,230
11,218
11,114
11,138
11,135
11,146
11,159
11,166
11,190
11,246
11,269
11,315
11,355
11,390
11,393
11,404
11,411
11,459
11,477
11,515
11,566
11,547
11,537
11,595
11,642

6,962
7,159
7,256
6,953
7,147
7,304
7,284
7,438
7,185
7,341
7,411
7,321
7,116
7,303
7,337
7,256
7,373
7,380
7,458
7,656
7,930
8,007
8,155
8,272
8,158
7,987
8,102
8,262
8,152
7,635
7,920
8,086
8,231
8,280
8,098
8,061
7,741
7,702
7,873
7,770
7,734
7,847
7,756
7,764
7,778
7,796
7,811
7,816
7,879
7,865
7,887
7,910
7,942
7,958
7,976
7,986
7,994
8,001
8,013
8,029
8,027
8,013
8,012
8,053
8,077

TABLE B-43-—Employees on nonagricultural payrolls, by major industry, 1946-88—Continued
[Thousands of persons; monthly data seasonally adjusted]
Service-producing industries
Year or month

1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1987- Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec
1988- Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov*

Total

....

.. ..

'.

....

....

....

.. .

24,404
25,348
26,092
26,189
26,691
27,860
28,595
29,128
29,239
30,128
31,266
31,889
31,811
32,857
33,755
34,142
35,098
36,013
37,278
38,839
40,743
42,495
44,160
46,023
47,302
48,278
50,007
51,897
53,471
54,345
56,030
58,125
61,113
63,363
64,748
65,659
65,753
66,866
69,769
72,660
74,967
77,525
76,294
76,483
76,724
77,019
77,176
77,394
77,642
77,821
78,004
78,346
78,555
78,800
79,082
79,458
79,690
79,846
80,023
80,465
80,608
80,786
81,089
81,234
81,578

Transportation
and
public
utilities
4,061
4,166
4,189
4,001
4,034
4,226
4,248
4,290
4,084
4,141
4,244
4,241
3,976
4,011
4,004
3,903
3,906
3,903
3,951
4,036
4,158
4,268
4,318
4,442
4,515
4,476
4,541
4,656
4,725
4,542
4,582
4,713
4,923
5,136
5,146
5,165
5,082
4,954
5,159
5,238
5,255
5,385
5,304
5,316
5,331
5,354
5,356
5,363
5,373
5,394
5,427
5,448
5,466
5,481
5,499
5,513
5,530
5,543
5,556
5,582
5,598
5,605
5,618
5,623
5,662

Wholesale
trade
2,291
2,471
2,605
2,602
2,635
2,727
2,812
2,854
2,867
2,926
3,018
3,028
2,980
3,082
3,143
3,133
3,198
3,248
3,337
3,466
3,597
3,689
3,779
3,907
3,993
4,001
4,113
4,277
4,433
4,415
4,546
4,708
4,969
5,204
5,275
5,358
5,278
5,268
5,555
5,717
5,753
5,872
5,778
5,797
5,807
5,829
5,841
5,860
5,874
5,892
5,914
5,935
5,958
5,984
6,010
6,035
6,061
6,089
6,115
6,148
6,174
6,192
6,219
6,242
6,270

Retail
trade

6,084
6,485
6,667
6,662
6,751
7,015
7,192
7,393
7,368
7,610
7,840
7,858
7,770
8,045
8,248
8,204
8,368
8,530
8,823
9,250
9,648
9,917
10,320
10,798
11,047
11,351
11,836
12,329
12,554
12,645
13,209
13,808
14,573
14,989
15,035
15,189
15,179
15,613
16,545
17,356
17,930
18,509
18,210
18,279
18,327
18,394
18,417
18,481
18,543
18,569
18,605
18,705
18,761
18,784
18,927
19,045
19,050
19,093
19,130
19,205
19,261
19,279
19,291
19,329
19,348

Government

Finance,
insurance,
and real
estate

Services

1,675
1,728
1,800
1,828
1,888
1,956
2,035
2,111
2,200
2,298
2,389
2,438
2,481
2,549
2,629
2,688
2,754
2,830
2,911
2,977
3,058
3,185
3,337
3,512
3,645
3,772
3,908
4,046
4,148
4,165
4,271
4,467
4,724
4,975
5,160
5,298
5,341
5,468
5,689
5,955
6,283
6.549
6,445
6,466
6,491
6,518
6,539
6,553
6,570
6,581
6,588
6,604
6,608
6,619
6,633
6,636
6,651
6,650
6,656
6,679
6,684
6,689
6,692
6,710
6,729

4,697
5,025
5,181
5,240
5,357
5,547
5,699
5,835
5,969
6,240
6,497
6,708
6,765
7,087
7,378
7,620
7,982
8,277
8,660
9,036
9,498
10,045
10,567
11,169
11,548
11,797
12,276
12,857
13,441
13,892
14,551
15,303
16,252
17,112
17,890
18,619
19,036
19,694
20,797
22,000
23,053
24,196
23,668
23,743
23,858
23,962
24,053
24,153
24,273
24,369
24,415
24,524
24,604
24,725
24,795
24,975
25,078
25,163
25,216
25,472
25,561
25,662
25,737
25,814
26,008

Total
5,595
5,474
5,650
5,856
6,026
6,389
6,609
6,645
6,751
6,914
7,278
7,616
7,839
8,083
8,353
8,594
8,890
9,225
9,596
10,074
10,784
11,391
11,839
12,195
12,554
12,881
13,334
13,732
14,170
14,686
14,871
15,127
15,672
15,947
16,241
16,031
15,837
15,869
16,024
16,394
16,693
17,015
16,889
16,882
16,910
16,962
16,970
16,984
17,009
17,016
17,055
17,130
17,158
17,207
17,218
17,254
17,320
17,308
17,350
17,379
17,330
17,359
17,532
17,516
17,561

Federal
2,254
1,892
1,863
1,908
1,928
2,302
2,420
2,305
2,188
2,187
2,209
2,217
2,191
2,233
2,270
2,279
2,340
2,358
2,348
2,378
2^64
2,719
2,737
2,758
2,731
2,696
2,684
2,663
2,724
2,748
2,733
2,727
2,753
2,773
2,866
2,772
2,739
2,774
2,807
2,875
2,899
2,943
2,909.
2,914
2,923
2,930
2,936
2,939
2,941
2,943
9,962
2,966
2,974
2,980
2,973
2,972
2,970
2,963
2,957
2,951
2,951
2,956
2,989
2,990
2,991

State
and
local
3,341
3,582
3,787
3,948
4,098
4,087
4,188
4,340
4,563
4,727
5,069
5,399
5,648
5,850
6,083
6,315
6,550
6,868
7,248
7,696
8,220
8,672
9,102
9,437
9,823
10,185
10,649
11,068
11,446
11,937
12,138
12,399
12,919
13,174
13,375
13,259
13,098
13,096
13,216
13,519
13,794
14,072
13,980
13,968
13,987
14,032
14,034
14,045
14,068
14,073
14,093
14,164
14,184
14,227
14,245
14,282
14,350
14,345
14,393
14,428
14,379
14,403
14,543
14,526
14,570

Mote,— Data in Tables B-43 through B-45 are based on reports from employing establishments and relate to full- and part-time wage
and salary workers in nonagricultural establishments who received pay for any part of the pay period which includes the 12th of the
month. Not comparable with labor force data (Tables B-32 through B-41) which include proprietors, self-employed persons, domestic
servants, and unpaid family workers; which count persons as employed when they are not at work because of industrial disputes, bad
weather, etc., even if they are not paid for the time off; and which are based on a sample of the working-age population. For
description and details of the various establishment data, see "Employment and Earnings."
Source: Department of Labor, Bureau of Labor Statistics.




357

TABLE B-44.—Average weekly hours and hourly earnings in selected private nonagricultural industries,
1947-88
[For production or nonsupervisory workers; monthly data seasonally adjusted, except as noted]
Average hourly earnings

Average weekly hours
Total
private
nonagricultural '

Manufacturing

40.3
40.0
39.4
39.8
39.9
39.9
39.6
39.1
39.6
39.3
38.8
38.5
39.0
38.6
38.6
38.7
38.8
38.7
38.8
38.6
38.0
37.8
37.7
37.1
36.9
37.0
36.9
36.5
36.1
36.1
36.0
35.8
35.7
35.3
35.2
34.8
35.0
35.2
34.9
34.8
34.8

40.4
40.0
39.1
40.5
40.6
40.7
40.5
39.6
40.7
40.4
39.8
39.2
40.3
39.7
39.8
40.4
40.5
40.7
41.2
41.4
40.6
40.7
40.6
39.8
39.9
40.5
40.7
40.0
39.5
40.1
40.3
40.4
40.2
39.7
39.8
38.9
40.1
40.7
40.5
40.7
41.0

38.2
38.1
37.7
37.4
38.1
38.9
37.9
37.2
37.1
37.5
37.0
36.8
37.0
36.7
36.9
37.0
37.3
37.2
37.4
37.6
37.7
37.3
37,9
37.3
37,2
36.5
36.8
36,6
36.4
36.8
36.5
36.8
37.0
37,0
36.9
36.7
37.1
37.8
37.7
37.4
37.8

40.3
40.2
40.4
40.4
40.4
39.8
39.1
39.2
39.0
38.6
38.1
38.1
38.2
38.0
37.6
37.4
37.3
37.0
36.6
35.9
35.3
34.7
34.2
33.8
33.7
33.4
33.1
32.7
32.4
32.1
31.6
31.0
30.6
30.2
30.1
29.9
29.8
29.8
29.4
29.2
29.2

1987: Jan
Feb
Mar
Aor
May ....
June....

34.7
34.8
34.8
34.7
34.8
34.7

40.9
41.1
41.0
40.7
41.0
41.0

38.2
38.1
37.8
37.5
37.9
37.7

29.0
29.3
29.3
29.5
29.3
29.2

8.86
8.88
8.89
8.91
8.95
8.95

July
Aug
Sept....
Oct
Nov
Dec

34.8
34.8
34.6
34.9
34.8
34.6

41.0
41.0
40.6
41.2
41.2
41.0

37.7
37.8
35.9
38.2
37.9
38.0

29.3
29.4
29.5
29.2
29.2
28.8

1988: Jan
Feb
Mar
Apr
May ....
June....

34.7
34.8
34.6
34.9
34.7
34.7

41.1
41.0
40.9
41.2
41.0
41.1

36.9
37.3
37.8
38.0
37.6
38.3

July
Aug
Sept....
Oct
Nov P..

34.9
34.6
34.7
34.9
34.7

41.1
41.0
41.2
41.2
41.2

37.7
37,7
37,8
38.3
38.4

Year or
month

1947.
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959..
1960
1961..
1962
1963
1964
1965..
1966
1967
1968
1969
1970
1971..
1972.
1973..
1974..
1975
1976.
1977
1978..
1979
1980..
1981
1982..
1983
1984..
1985..
1986
1987..

.

Construction

Retail
trade

Total
private
nonagricultural *

Manufacturing

Construction

Adjusted hourly earnings, total
private nonagricultural 2

Retail
trade

Index,
1977-100
Current
dollars

Percent change
from a year
earlier*

1977
1977
dollars 3 Current dollars
dollars

$1.540
1.712
1.792
1.863
2.02
2.13
2.28
2.38
2.45
2.57
2.71
2.82
2.93
3.07
3.20
3.31
3.41
3.55
3.70
3.89
4.11
4.41
4.79
5.24
5.69
6.06
6.41
6.81
7.31
7.71
8.10
8.66
9.27
9.94
10.82
11.63
11.94
12.13
12.32
12.48
12.69

$0.838
.901
.951
.983
1.06
1.09
1.16
1.20
1.25
1.30
1.37
1.42
1.47
1.52
1.56
1.63
1.68
1.75
1.82
1.91
2.01
2.16
2.30
2.44
2.60
2.75
2.91
3.14
3.36
3.57
3.85
4.20
4.53
4.88
5.25
5.48
5.74
5.85
5.94
6.03
6.11

21.6
23.4
24.5
25.4
27.3
28.7
30.3
31.3
32.4
34.0
35.7
37.2
38.5
39.8
41.0
42.4
43.6
44.8
46.4
48.4
50.8
53.9
57.5
61.3
65.7
69.8
74.1
80.0
86.7
92.9
100.0
108.2
116.8
127.3
138.9
148.5
155.4
160.3
165.2
169.4
173.5

58.5
58.9
62.3
64.0
63.6
65.5
68.7
70.5
73.3
75.9
76.9
78.0
80.0
81.4
83.0
85.0
86.3
87.5
89.0
90.3
92.2
94.0
95.0
95.7
98.3
101.2
101.1
98.3
97.6
99.0
100.0
100.5
97.4
93.5
92.6
93.4
94.8
94.6
94.1
95.0
94.0

8.3
4.7
3.7
7.5
5.1
5.6
3.3
3.5
4.9
5.0
4.2
3.5
3.4
3.0
3.4
2.8
2.8
3.6
4.3
5.0
6.1
6.7
6.6
7.2
6.2
6.2
8.0
8.4
7.2
7.6
8.2
7.9
9.0
9.1
6.9
4.6
3.2
3.1
2.5
2.4

9.80
9.83
9.84
9.86
9.88
9.89

12.55
12.55
12.66
12.67
12.70
12.74

6.05
6.05
6.05
6.08
6.09
6.10

171.3
171.9
172.1
172.5
172.9
172.9

94.7
94.7
34.4
94.1
94.0
93.7

2.3
2.2
2.2
2.4
2.4
2.2

-'.6
-1.3
-U
-1.4

8.96
9.01
9.02
9.07
9.10
9.11

9.88
9.94
10.00
9.99
10.00
10.01

12.71
12.72
12.70
12.72
12.81
12.74

6.12
6.13
6.18
6.16
6.17
6.19

173.2
174.1
174.6
174.9
175.6
175.7

93.7
93.8
93.7
93.5
93.8
93.7

2.3
2.7
2.8
2.7
2.6
2.7

-1.5
-1.6
-1.5
-1.8
-1.9
-1.7

29.0
29.1
29.0
29.2
29.0
29.1

9.14
9.13
9.16
9.23
9.27
9.27

10.02
10.03
10.05
10.11
10.15
10.18

12.91
12.82
12.90
12.93
12.91
12.93

6.20
6.20
6.22
6.25
6.28
6.29

176.6
176.7
177.0
178.0
178.7
178.6

93.8
93.7
93.5
93.6
93.6
93.2

3.1
2.8
2.9
3.2
3.4
3.3

-1.0
-1.0
= .9
-.6

29.3
29.0
28.9
29.2
29.0

9.32
9.32
9.37
9.43
9.42

10.17
10.20
10.26
10.28
10.29

13.03
12.99
13.04
13.04
13.04

6.33
6.32
6.34
6.38
6.43

179.3
179.5
180.3
181.5
181.5

93.2
92.9
93.0
93.1
93.0

3.5
3.1
3.3
3.8
3.3

$1.216
$1.131
1.327
1.225
1.376
1.275
1.439
1.335
1.56
1.45
1.64
1.52
1.74
1.61
1.78
1.65
1.71
1.85
1.95
1.80
2.04
1.89
1.95
2.10
. 2.19
2.02
2.26
2.09
2.14
2.32
2.22
2.39
2.28
2.45
2.53
2.36
2.61
2.46
2.71
2.56
2.82
2.68
3.01
2.85
3.04
3.19
3.35
3.23
3.57
3.45
3.82
3.70
3.94
4.09
4.24
4.42
4.53
4.83
5.22
4.86
5.68
5.25
6.17
5.69
6.70
6.16
7.27
6.66
7.25
7.99
7.68
8.49
8.02
8.83
9.19
8.32
8.57
9.54
8.76
9.73
8.98
9.91

1
Also includes other private industry groups shown in Table B-43.
2
Adjusted for overtime (in manufacturing only) and for interindustry employment shifts.
3
Current-dollar index divided by the consumer price index for urban wage earners and
4

0.7
5.8
2.7
- .6
3.0
4.9
2.6
4.0
3.5
1.3
1.4
2.6
1.8
2.0
2.4
1.5
1.4
1.7
1.5
2.1
2.0
1.1
.7
2.7
3.0
-.1
-2.8

~l.A
1.0
.5
=3.1
-4.0
-1.0
.9
1.5
~'.5
1.0
-1.1
1.2

='.6
—5
-.9
-.8
= .4
-.9

clerical workers on a 1977=100 base.
Monthly percent changes are computed from indexes to two decimal places and are based on data not seasonally adjusted.
Note.-See Note, Table B-43.
Source: Department of Labor, Bureau of Labor Statistics.




358

TABLE B-45.—Average weekly earnings in selected private nonagricultural industries, 1947-88
[For production or nonsupervisory workers; monthly data seasonally adjusted, except as noted]
Average weekly earnings
Total private
nonagricultural 1

Year or month

Current
dollars

1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
.
1977
,
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1987- Jan
Feb
Mar
Apr
May
June

....

.

July

Aug
Sept
Oct
Nov
Dec
1988- Jan
Feb
Mar
Apr
May
June
July
Aug
Seot
Oct
Nov "

. ..

$45.58
49.00
50.24
53.13
57.86
60.65
63.76
64.52
67.72
70.74
73.33
75.08
78,78
80.67
82.60
85.91
88.46
91.33
95.45
98.82
101.84
107.73
114.61
119.83
127.31
136.90
145.39
154.76
163.53
175.45
189.00
203.70
219.91
235.10
255.20
267.26
280.70
292.86
299.09
304.85
312.50
307.44
309.02
309.37
309.18
311.46
310.57
311.81
313.55
312.09
316.54
316.68
315.21
317.16
317.72
316.94
322.13
321.67
321.67
325.27
322.47
325.14
329.11
326.87

1977
dollars 2

Manufacturing
(current
dollars)

$123.52
123.43
127.84
133.83
134.87
138.47
144.58
145.32
153.21
157.90
158.04
157.40
163.78
164.97
167.21
172.16
175.17
178.38
183.21
184.37
184.83
187.68
189.44
186.94
190.58
198.41
198.35
190.12
184.16
186.85
189.00
189.31
183.41
172.74
170.13
168.09
171.26
172.78
170.42
171.07
169.28
169.95
170.26
169.70
168.67
169.36
168.33
168.64
168.85
167.52
169.27
169.08
168.02
168.43
168.46
167.43
169.36
168.41
167.89
169.06
166.82
167.68
168.86
167.45

$49.13
53.08
53.80
58.28
63.34
66.75
70.47
70.49
75.30
78.78
81.19
82.32
88.26
89.72
92.34
96.56
99.23
102.97
107.53
112.19
114.49
122.51
129.51
133.33
142.44
154.71
166.46
176.80
190.79
209.32
228.90
249.27
269.34
288.62
318.00
330.26
354.08
374.03
386.37
396.01
406.31
400.82
404.01
403.44
401.30
405.08
405.49
405.08
407.54
406.00
411.59
412.00
410.41
411.82
411.23
411.05
416.53
416.15
418.40
417.99
418.20
422.71
-^423.54
423.95

1

Construction
(current
dollars)
$58.83
65.23
67.56
69.68
76.96
82.86
86.41
88.54
90.90
96.38
100.27
103.78
108.41
112,67
118,08
122,47
127.19
132.06
138.38
146.26
154.95
164.49
181.54
195.45
211,67
221.19
235.89
249.25
266.08
283.73
295.65
318.69
342.99
367.78
399.26
426.82
442.97
458.51
464.46
466.75
479.68
479.41
478.16
478.55
475.13
481.33
480.30
479.17
480.82
455.93
485.90
485.50
484.12
476.38
478.19
487.62
491.34
485.42
495.22
491.23
489.72
492.91
499,43
500.74

Percent change from
a year earlier, total
private
nonagricultural 3

Retail
trade
(current
dollars)

Current
dollars

$33.77
36.22
38.42
39.71
42.82
43.38
45.36
47.04
48.75
50.18
52.20
54.10
56.15
57.76
58.66
60.96
62.66
64.75
66.61
68.57
70.95
74.95
78.66
82.47
87.62
91.85
96.32
102.68
108.86
114.60
121.66
130.20
138.62
147.38
158.03
163.85
171.05
174.33
174.64
176.08
178.41
175.45
177.27
177.27
179.36
178.44
178.12
179.32
180.22
182.31
179.87
180.16
178.27
179.80
180.42
180.38
182.50
182.12
183.04
185.47
183.28
183.23
186.30
186.47

7.5
2.5
5.8
8.9
4.8
5.1
1.2
5.0
4.5
3.7
2.4
4.9
2.4
2.4
4.0
3.0
3.2
4.5
3.5
3.1
5.8
6.4
4.6
6.2
7.5
6.2
6.4
5.7
7.3
7.7
7.8
8.0
6.9
8.5
4.7
5.0
4.3
2.1
1.9
2.5
1.2
2.4
1.7
1.9
2.7
2.5
2.6
3.1
2.4
3.5
3.2
3.0
3.1
2.8
2.4
4.2
3.1
3.3
4.2
2.8
4.2
4.1
3.2

1977
dollars
-0.1
3.6
4.7
.8
2.7
4,4
.5
5.4
3.1
.1
4
4.1
.7
1.4
3.0
1.7
1.8
2.7
.6
.2
1.5
.9
-1.3
1.9
4.1
-.0
-4.1
-3.1
1.5
1.2
.2
-3.1
-5.8
-1.5
-1.2
1.9
.9
= 1.4
.4
-1.0
.1
-U
-1.8
-1.0
= 1.1
-1.3
= 1.2
-1.8
= 1.0
-1.3
= 1.4
.9
-1.0
= 1.3
.4
.7
-.5
.2
= 1.2
-.0
= .1
-1.0

Also includes other private industry groups shown in Table B-43.
Earnings in current dollars divided by the consumer price index for urban wage earners and clerical workers on a 1977 = 100 base.
Based on data not seasonally adjusted.
Note.—See Note, Table B-43.
Source: Department of Labor, Bureau of Labor Statistics.
2
3




359

TABLE B-46.—Productivity and related data, business sector, 1947-88
[1977=100; quarterly data seasonally adjusted]

Year or
quarter

Output per hour
of all persons

Compensation
per hour 3

Hours of 2
all
persons

Output *

Real compensation
per hour 4

Unit labor costs

Implicit price
deflator6

Business
sector

Nonfarm
business
sector

Business
sector

Nonfarm
business
sector

Business
sector

Nonfarm
business

Business
sector

Nonfarm
business
sector

Business
sector

Nonfarm
business
sector

Business
sector

Nonfarm
business
sector

Business
sector

Nofifarm
business
sector

1947
1948
1949

44.9
47.2
47.7

51.4
53.3
54.2

36.2
38.3
37.4

35.2
37.2
36.4

80.6
81.2
78.5

68.6
69.8
67.0

16.6
18.1
18.4

18.0
19.6
20.2

45.2
45.4
46.8

49.0
49.2
51.4

37.0
38.3
38.5

35.1
36.7
37.2

35.5
38.0
37.8

34.0
36.4
36.9

1950
1951
1952
1953
1954

51.7
53.8
55.4
57.5
58.4

57.7
59.4
60.7
62.1
63.0

41.0
43.9
45.3
47.4
46.5

39.9
43.0
44.4
46.4
45.5

79.3
81.6
81.7
82.5
79.7

69.1
72.3
73.0
74.8
72.2

19.7
21.6
23.0
24.6
25.3

21.4
23.3
24.6
26.0
26.8

49.6
50.5
52.6
55.7
57.1

53.8
54.3
56.2
59.0
60.4

38.1
40.3
41.5
42.7
43.4

37.1
39.2
40.5
41.9
42.6

38.4
40.8
41.4
41.7
42.2

37.5
39.6
40.4
41.1
41.8

1955
1956
1957
1958
1959

60.1
60.9
62.5
64.4
66.5

64.8
65.2
66.5
68.0
70.2

49.7
51.1
51.7
50.7
54.4

48.7
50.2
50.9
49.8
53.7

82.7
83.9
82.7
78.8
81.8

75.1
77.0
76.6
73.3
76.4

26.0
27.7
29.5
30.9
32.2

27.8
29.5
31.2
32.5
33.8

58.8
61.8
63.7
64.8
67.2

62.9
65.8
67.3
68.1
70.4

43.2
45.5
47.2
48.0
48.5

42.9
45.3
47.0
47.7
48.2

43.2
44.6
46.2
46.9
47.8

43.1
44.5
46.1
46.6
47.8

I960
1961
1962
1963
1964

67.6
70.0
72.5
75.4
78.7

71.0
73.2
75.6
78.3
81.4

55.4
56.5
59.4
62.1
65.9

54.6
55.7
58.7
61.5
65.4

81.9
80.7
81.9
82.4
83.7

76.9
76.0
77.6
78.5
80.3

33.6
34.9
36.6
37.9
39.9

35.3
36.5
38.0
39.3
41.1

68.9
70.8
73.4
75.1
78.0

72.3
73.9
76.2
77.8
80.4

49.7
49.9
50.4
50.3
50.7

49.7
49.8
50.2
50.2
50.5

48.5
48.8
49.7
50.2
50.7

48.5
48.8
49.7
50.2
50.8

1965
1966
1967
1968
1969 . , .

81.0
83.2
85.5
87.8
87.8

83.4
85.2
87.1
89.4
89.0

70.0
73.6
75.6
78.9
81.1

69.5
73.4
75.3
78.8
80.9

86.4
88.5
88.5
89.9
92.3

83.3
86.2
86.4
88.1
90.9

41.5
44.3
46.7
50.4
53.9

42.5
45.0
47.5
51.1
54.4

79.8
82.9
84.8
87.8
89.0

81.8
84.2
86.2
89.0
89.9

51.2
53.3
54.7
57.4
61.4

50.9
52.8
54.5
57.1
61.2

51.9
53.6
54.9
57.5
60.4

51.9
515
60.4

1970
1971
1972
1973
1974

88.4
91.3
94.1
95.9
93.9

89.3
91.9
94.7
96.4
94.3

80.3
82.5
87.7
92.9
91.3

80.0
82.2
87.5
92.9
91.2

90.8
90.4
93.2
96.9
97.3

89.7
89.4
92.3
96.3
96.7

57.8
61.6
65.5
70.9
77.6

58.2
62.0
66.0
71.2
78.0

90.3
92.1
94.9
96.8
95.4

90.9
92.8
95.7
97.2
95.9

65.4
67.4
69.6
73.9
82.7

65.2
67.4
69.7
73.9
82.7

63.2
66.4
69.0
73.4
80.5

63.4
66.6
69.0
72.3
79.7

1975
1976
1977
1978
1979

95.7
98.3
100.0
100.8
99.6

96.0
98.5
100.0
100.8
99.3

89.4
94.5
100.0
105.8
107.9

89.1
94.4
100.0
106.0
107.9

93.4
96.1
100.0
104.9
108.3

92.8
95.9
100.0
105.1
108.7

85.2
92.8
100.0
108.5
119.1

85.6
92.8
100.0
108.6
118.9

96.0
98.8
100.0
100.9
99.4

96.4
98.9
100.0
100.9
99.2

89.0
94.3
100.0
107.6
119.5

89.2
94.3
100.0
107.7
119.7

88.7
94.0
100.0
107.3
117.0

88.3
93.8
100.0
107.0
116.5

1980
1981
1982
1983
1984

99.3
100.7
100.3
103.0
105.5

98.8
99.8
99.2
102.5
104.6

106.7
108.9
105.5
109.9
119.2

106.7
108.5
104.9
110.1
119.2

107.5
108.2
105.2
106.8
112.9

108.0
108.7
105.7
107.5
114.0

131.5
143.7
154.9
161.4
167.9

131.3
143.6
154.8
161.5
167.8

96.7
95.8
97.3
98.2
97.9

96.6
95.8
97.2
98.3
97.9

132.5
142.7
154.5
156.7
159.1

132.9
144.0
156.0
157.6
160.4

127.6
139.8
148.1
153.0
158.2

127.8
140.3
149.2
154.3
159.0

1985
1986
1987

107.7
106.1 124.2
110.1 . 108.2 128.6
111.0 109.0 133.3

123.9
128.2
133.0

115.3
116.8
120.1

116.8
118.5
122.1

175.5
183.1
190.4

174.9
182.3
189.4

98.8
101.2
101.5

98.5
100.8
101.0

162.9
166.3
171.5

164.9
168.6
173.8

162.2
165.8
170.5

163.8
167.8
172.5

1982: IV
1983: IV
1984: IV
1985: IV

101.0
103.8
105.9
108.5

99.7
103.3
104.9
106.5

105.0
113.6
120.8
125.9

104.2
114.1
120.7
125.5

103.9
109.4
114.0
116.1

104.5
110.4
115.1
117.9

158.3
163.6
170.3
178.8

158.2
163.4
170.2
177.9

98.0
98.1
98.1
99.4

97.9
97.9
98.1
99.0

156.8
157.6
160.7
164.8

158.7
158.2
162.3
167.1

150.2
155.2
159.8
163.7

151.4
156.2
161.0
165.5

1986:1
||
III
IV

110.5
110.4
110.0
109.8

108.6
108.4
108.0
107.8

128.4
128.2
128.5
129.3

128.1
127.8
128.1
128.8

116.2
116.1
116.8
117.8

117.9
117.9
118.6
119.5

180.4
182.0
184.0
186.2

179.8
181.2
183.1
185.4

100.0
101.2
101.7
102.2

99.6
100.7
101.2
101.8

163.3
164.9
167.3
169.6

165.5
167.1
169.5
172.1

163.7
165.0
167.0
167.5

165.7
167.0
169.0
169.5

1987:1
II..
Ill
IV

109.9
110.6
111,7
111.8

107.8
108.6
109.6
109.9

130.5
132.2
134.3
136.2

130.1 118.8
131.9 119.5
134.1 120.3
136.0 121.8

120.7
121.5
122.3
123.8

187.3
189.0
191.1
194.0

186.4
187.9
190.0
192.9

101.5
101.2
101.4
102.0

101.0
100.6
100.8
101.4

170.5
170.8
171.1
173.5

172.9
173.0
173.3
175.6

16S.7
170.1
171.2
171.9

170.9
171.9
173.2
174.0

1988:1
||
III

112.8
111.8
112.2

110.8 138.0
110.1 138.8
110.6 139.7

122.3
124.1
124.5

124.4
126.4
126.9

195.8
198.1
201.0

194.6
196.6
199.4

102.1
102.1
102.4

101.5
101.3
101.5

173.5
177.1
179.1

175.7
178.6
180.2

172.3
174.7
176.7

174.2
176.2
177.9

137.9
139.2
140.4

1
Output refers to gross domestic product originating in the sector in 1982 dollars.
2
Hours of all persons engaged in the sector, including hours of proprietors and unpaid family workers. Estimates based primarily on
establishment data.
3
Wages and salaries of employees plus employers' contributions for social insurance and private benefit plans. Also includes an
estimate of wages, salaries, ana supplemental payments for the self-employed.
4
Hourly compensation divided by the consumer price index for all urban consumers.
6
Current dollar gross domestic product divided by constant dollar gross domestic product.
Source: Department of Labor, Bureau of Labor Statistics.




360

TABLE B-47.—Changes in productivity and related data, business sector, 1948-88
[Percent change from preceding period; quarterly data at seasonally adjusted annual rates]

Year or
quarter

Output per hour
of all persons
Business
sector

Compensation per
hour3

Hours of 2all
persons

Output1

Real compensation
per hour 4

Unit labor costs

Implicit price
deflator5

Nonfarm Busi- Nonfarm Busi- Nonfarm Busi- Nonfarm Busi- Nonfarm Busi- Nonfarm Busi- Nonfarm
business ness business ness business ness business ness business ness business ness business
sector sector sector sector sector sector sector sector sector sector sector sector sector
17
-3^9

85
1.7

85
3.0

04
3.0

04
4.3

33
.6

46
1.3

7.2
-.6

7.2
1.3

3.0
4.6
1.0
2.4
-3.4

7.3
9.8
6.3
6.7
3.2

6.1
8.7
5.6
5.7
3.3

60
1.8
4.3
5.9
2.5

4.8
.8
36
4.9
2.5

-.9
5.6
31
3.0
1.6

-.3
5.6
3.3
3.5
1.8

1.5
6.3
1.3
7
1.2

1.8
5.6
2.0
1.8
1.5

4.0
2.5
-.6
-4.3
4.3

2.5
6.7
6.5
4.6
4.4

3.6
6.2
5.7
4.1
4.1

2.9
5.1
3.1
1.7
3.6

4.0
4.6
2.4
1.2
3.4

-.5
5.3
3.8
1.6
1.0

.7
5.5
3.8
1.6
.9

26
3.2
3.5
1.6
2.0

3.2
3.3
3.6
1.2
2.5

1.7
2.0
55
4.7
6.3

3.7
1.5
-1.5
-4.7
3.8
.1
-1.6
1.6
.6
1.6

.6
-1.1
2.1
1.1
2.3

4.3
3.9
4.7
3.8
5.2

44
3.3
41
3.5
4.6

25
2.8
3.6
2.4
3.9

26
2.2
31
2.2
3.3

2.6
.3
1.1
-.2
.8

3.3
.1
.8
-.1
.7

1.4
.5
1.9
.9
1.0

1.4
.6
2.0
.9
1.2

6.3
5.2
2.7
4.4
2.7

6.4
5.6
2.5
4.7
2.7

3.2
2.4
-.0
1.7
2.6

3.8
3.4
.3
2.0
3.2

3.8
6.9
5.4
7.9
7.0

3.4
5.9
5.5
7.6
6.6

2.2
4.0
2.2
3.5
1.5

1.7
3.0
2.3
3.2
1.0

.9
4.1
2.6
5.0
6.9

.8
3.7
3.2
4.8
7.1

2.3
3.3
2.5
4.6
5.1

2.0
3.1
2.9
4.6
5.0

.3
3.0
3.1
1.8
-2.2

-.9
2.7
6.3
6.0
-1.8

-1.1
2.7
6.4
6.2
-1.8

-1.6
-.5
3.1
3.9
.4

-1.3
-.3
3.3
4.3
.4

7.3
6.4
6.4
8.3
9.5

7.0
6.5
6.5
7.9
9.6

1.5
2.0
3.1
1.9
-1.4

1.2
2.0
3.2
1.6
-1.3

6.5
3.1
3.3
6.2
11.9

6.7
3.4
3.4
6.0
12.0

4.7
4.9
4.0
6.4
9.6

4.9
5.0
3.6
4.8
10.2

2.0
2.8
1.7
.8
-1.2

1.8
2.6
1.6
.8
-1.6

-2.1
5.8
5.8
5.8
2.0

-2.3
6.0
5.9
6.0
1.9

-4.0
2.9
4.0
4.9
3.2

-4.0
3.4
4.3
5.1
3.5

9.7
8.9
7.8
8.5
9.7

9.7
8.4
7.7
8.6
9.5

.6
2.9
1.2
.9
-1.5

.5
2.5
1.2
.9
-1.7

7.6
5.9
6.0
7.6
11.1

7.8
5.7
6.1
7.7
11.2

10.3
5.9
6.4
7.3
9.0

10.8
6.3
6.6
7.0
8.9

-.3
1.4
-.4
2.7
2.5

-.4
1.0
-.6
. 3.3
2.1

-1.1
2.1
-3.1
4.2
8.4

-1.2
1.7
-3.3
5.0
8.3

-.8
.7
-2.8
1.5
5.7

-.7
.7
-2.7
1.6
6.0

10.5
9.2
7.8
4.2
4.1

10.5
9.4
7.8
4.3
39

-2.7
-1.0
1.6
.9
2

-2.7
-.8
1.5
1.1
4

10.9
7.7
8.3
1.4
1.5

11.0
8.3
8.4
1.0
1.8

9.0
9.6
5.9
3.3
3.3

9.7
9.7
6.3
3.5
3.0

1985
1986....
1987

2.1
2.2
.8

1.4
2.0
.8

4.2
3.5
3.6

3.9
3.5
3.8

2.1
1.3
2.8

15

s!o

4.5
4.3
4.0

4.2
4.2
3.8

.9
2.4
.3

.6
2.3
.2

2.4
2.1
3.1

2.8
2.2
3.1

2.5
2.3
2.8

3.0
2.4
2.8

1982:
1983:
1984:
1985:

3.0
3.1
1.7
.7

2.4
1.4
1.2
.2

-.5
10.4
3.5
3.6

-1.2
9.8
3.1
3.5

-3.4
7.1
1.8
2.9

-3.5
8.2
1.9
3.4

4.5
5.5
3.8
5.4

5.0
4.3
3.9
5.1

3.2
1.4
.6
1.3

3.8
.2
.7
1.0

1.5
2.3
2.1
4.7

2.6
2.8
2.7
4.9

2.4
4.8
2.7
2.6

3.0
3.1
3.3
2.1

1986:1

7.7
-.4
-1.4
-.8

8.4
-.8
-1.5
-.9

8.3
-.8
.9
2.5

8.5
-.8
.8
2.4

.6
-.4
2.3
3.4

.0
-.0
2.4
3.3

3.7
3.7
4.4
4.8

4.3
3.2
4.3
5.1

2.1
5.1
2.0
2.1

2.7
4.6
1.9
2.3

-3.7
4.1
5.8
5.7

-3.8
4.0
5.9
6.1

.1
3.2
5.0
1.1

.4
3.0
5.1
1.2

1987:1

II
Ill
IV

.3
2.7
3.9
.6

.0
3.2
3.7
.9

3.7
5.3
6.6
5.7

4.0
5.7
6.8
5.9

3.4
2.5
2.6
5.1

4.0
2.5
2.9
4.9

2.5
3.6
4.6
6.2

2.1
3.4
4.5
6.4

-2.8
-1.2
.8
2.4

-3.2
-1.4
.6
2.6

2.2
.8
.7
5.6

2.1
.2
.7
5.4

3.0
3.2
2.8
1.4

3.3
2.3
3.1
1.8

1988:1
II
Ill

3.5
-3.4
1.5

3.4
-2.4
1.9

5.5
2.4
2.6

5.6
4.0
3.4

1.9
6.0
1.1

2.1
6.6
1.5

3.7
4.8
6.1

3.5
4.2
5.6

.3
.0
1.3

.1
-.5
.8

.2
8.5
4.5

.f
6.8
3.7

1.0
5.8
4.5

.6
47
3.8

08
-3.4
1.1
9.7

1948
1949

50
1.1

38
17

-2.3

59

56
-2.3

1950
1951
1952
1953
1954

83
4.0
3.1

i!e

64
3.0
22
2'2
1.5

95
7.1
32
4.6
-1.8

7.7
3.2
4.6
-2.0

2.9
.1
.9
-3.4

1955
1956
1957
1958
1959

29
.6
1.9
2.4
3.2
11
3.1
3.3
3,6
3.9

69
2.8
1.1
-1.8
7.3

7.1
3.1
1.3
-2.0
7.7

1960
1961
1962
1963
1964

30
1.3
2.6
3.0
3.3
17
3^5
3.6
4.0
4.3

18
1.9
5.2
4.6
6.0

1965
1966
1967
1968
1969

3.0
2.8
2.7
2.7
.1

2.5
2.1
2.3
2.6
-.5

1970
1971
1972
1973
1974

.7
3.2
3.0
2.0
-2.1

1975
1976
1977
1978
1979
1980
1981
1982
1983
1984

IV
IV
IV
IV
II
Ill
IV

1
2 Output

refers to gross domestic product originating in the sector in 1982 dollars.
Hours of all persons engaged in the sector, including hours of proprietors and unpaid family workers. Estimates based primarily on
establishment data.
3
Wages and salaries of employees plus employers' contributions for social insurance and private benefit plans. Also includes an
estimate of wages, salaries, and supplemental payments for the self-employed.
4
Hourly compensation divided by the consumer price index for all urban consumers.
6
Current dollar gross domestic product divided by constant dollar gross domestic product.
Note.—Percent changes are based on original data and therefore may differ slightly from percent changes based on indexes in Table
B-46.
Source: Department of Labor, Bureau of Labor Statistics.




361

PRODUCTION AND BUSINESS ACTIVITY
TABLE B-48.—Industrial production indexes, major indttstry divisions, 1939-88
[1977 = 100; monthly data seasonally adjusted]

1977 proportion
1939
1940
1941
1942...:
1943
1944
,
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975 .
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1987- Jan
Feb
Mar
Apr
May
June
July
Aug
Sept

Oct..:::::::::::::::"::::::
Nov
Dec

1988: Jan
Feb
Mar
Apr

May:::::::::::::::::

June
July
Aug
Sept
Oct "
Nov"

ManufacturingI

Total
industrial
production

Year or month

. .. .

Min

MHIi

Total

Durable

Nondurable

ing

ties

100.00
16.0
184
233
26.7
324
34.9
299
25.8
290
30.2
286
331
359
372
40.4
382
43.0
449
45.5
426
47.7
488
491
532
563
60.1
661
72.0
735
77.6
812
78.5
796
873
944
930
848
926
1000
1065
1107
1086
1110
103 1
1092
1214
1237
125 1
1298
1262
127.1
1274
1274
128.2
1291
1306
131 2
1310
1325
1332
1339
1344
1344
1347
1354
1361
1365
1380
1385
1386
1393
1399

84.21
15.8
186
238
27.7
345
37.3
312
25.9
289
30.0
283
33.0
356
37.1
40.4
378
42.6
444
44.9
417
47.0
480
48.1
524
555
59.3
657
71.7
731
77.2
806
77.0
782
864
940
926
834
919
1000
107.1
1115
1082
1105
1022
1102
1234
1264
129 1
1347
1307
131.6
1324
1324
133.2
1340
1356
1359
1357
1373
1379
1389
1394
1395
1400
1408
1418
1421
1436
1440
1444
1453
1460

49.10
13.6
181
24.2
30.7
418
46.1
349
24.4
290
30.3
275
33.5
377
40.0
45.2
399
45.6
47.1
47.4
415
47.7
485
476
528
563
60.3
686
76.2
770
80.8
840
77.6
773
863
963
943
826
91.1
1000
108.2
1139
109.1
111 1
999
1077
1242
1276
1284
1331
1293
130.8
1315
1309
131.4
1320
1335
1338
1337
1368
1367
1373
1379
1384
1388
1397
141 5
141 7
1429
1432
1438
1447
1454

35.11
17.9
188
22.7
23.7
254
26.4
263
27.1
282
29.2
287
31.9
330
336
35.0
352
39.1
411
41.8
421
46.3
474
488
518
546
58.2
621
66.0
681
72.5
763
763
794
865
908
902
845
93.1
1000
105.5
1082
107.0
1097
1055
1137
1223
1246
1301
1368
1327
1329
1337
1346
135.7
1369
1385
1388
1386
1381
1396
1413
1414
141 1
1417
1423
1421
1426
1446
1451
1453
1462
1468

9.83
37.6
418
44.4
45.7
46.8
50.2
492
48.3
546
57.4
509
569
624
619
63.5
623
69.5
731
73.2
671
70.2
716
721
741
771
80.2
831
87.6
893
92.7
964
989
964
984
993
988
966
974
1000
103.6
1064
112.4
1175
1093
1029
111 1
1089
1004
1007
994
988
983
986
992
992
992
1009
1019
1036
1046
1046
1033
101 5
1027
1047
1026
1030
1043
1038
1035
1026
1032

5.96
6.9
76
86
9.7
107
11.4
116
12.0
130
14.5
155
176
201
218
23.6
254
28.4
312
33.3
349
38.4
411
434
466
498
54.1
574
61.8
649
70.2
764
811
850
904
940
928
937
97.4
1000
103.1
1059
107.3
1071
1048
1052
1107
111 1
1085
1103
1080
1085
1079
1060
1096
1094
1112
1129
1112
1121
1132
1117
1152
1156
1133
1110
1116
1132
1144
1178
1128
1135
1140

Source: Board of Governors of the Federal Reserve System.




362

TABLE B-49.—Industrial production indexes, market groupings, 1947-88
[1977-100; monthly data seasonally adjusted]
Final products
Automotive
products

Business

Defense
and
space

14.34
25.9
27.0
23.6
25.2
30.8
34.9
36.3
31.9
34.6
40.1
41.7
35.2
39.5
40.6
39.4
42.8
44.9
50.3
57.6
66.7
68.0
71.0
75.6
72.9
69.3
79.0
92.4
96.5
86.1
89.3
100.0
112.2
124.7
125.1
127.6
113.6
115.4
134.2
140.2
139.5
144.5
138.6
141.7
141.9
142.1
141.7
144.2
145.6
145.6
146.3
148.7
148.3
149.8
151.2
152.4
153.3
154.6
156.9
158.1
159.3
160.2
160.8
160.7
161.3

3.67
15.2
17.8
18.6
21.9
53.8
75.7
90.6
79.8
73.1
71.4
74.6
74.9
78.9
81.1
82.4
95.4
102.9
99.6
110.3
129.6
147.8
148.1
141.0
119.4
107.3
104.3
101.9
100.4
98.5
100.1
100.0
101.2
105.6
115.4
119.8
133.0
143.1
156.4
171.4
182.0
188.9
187.3
188.9
188.6
189.2
189.3
188.6
188.7
189.1
189.8
190.3
188.7
188.9
190.6
191.0
189.9
187.9
185.5
184.6
184.9
184.9
184.6
184.4
184.3

....

. ...
.

....
=

....
....
...

Jan
Feb
Mar
Apr
Hay
June
July
Aug
Sept
Oct
Nov
Dec
1988: Jan
Feb
Mar
Apr
May
June
July
Aug

$$:::::::::::::::::::::::::
Oct»
Nov"

Total

100.00

1977 proportion

1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1987:

Equipment

Total
industrial
production

Year or month

Materials

Consumer goods

44.77

25.52

29.0
30.2
28.6
33.1
35.9
37.2
40.4
38.2
43.0
44.9
45.5
42.6
47.7
48.8
49.1
53.2
56.3
60.1
66.1
72.0
73.5
77.6
81.2
78.5
79.6
87.3
94.4
93.0
84.8
92.6
100.0
106.5
110.7
108.6
111.0
103.1
109.2
121.4
123.7
125.1
129.8
126.2
127.1
127.4
127.4
128.2
129.1
130.6
131.2
131.0
132.5
133.2
133.9
134.4
134.4
134.7
135.4
136.1
136.5
138.0
138.5
138.6
139.6
139.9

29.0
30.1
29.1
32.9
35.5
38.1
40.7
38.5
41.6
44.1
45.4
43.3
47.5
49.1
49.5
53.7
56.7
59.9
65.8
72.1
75.0
78.6
81.1
78.2
78.9
85.6
92.0
91.7
86.3
92.4
100.0
106.9
111.0
112.2
115.2
109.5
114.7
127.3
131.0
132.5
136.8
133.3
134.8
135.1
134.5
135.5
136.2
137.9
138.4
137.8
139.3
139.2
139.8
141.1
141.6
141.8
142.5
143.5
144.0
145.0
145.8
145.8
146.7
146.9

29.9
30.8
30.6
35.0
34.6
35.4
37.5
37.3
41.6
43.1
44.2
43.8
48.0
49.8
50.9
54.3
57.3
60.5
65.3
68:6
70.3
74.5
77.3
76.4
80.8
87.3
91.2
88.4
84.9
93.3
100.0
104.3
103.9
102.7
104.1
101.4
109.3
118.0
119.8
124.0
127.8
125.5
126.4
126.7
125.5
127.3
127.2
128.9
129.4
127.7
129.0
129.4
129.8
131.2
131.3
131.2
131.9
132.7
133.0
134.2
135.0
134.8
136.4
136.8

Total *

2.98
25.8
27.0
26.7
33.6
29.8
26.8
33.9
31.5
41.9
34.5
36.1
28.7
36.0
41.2
37.6
45.6
49.9
52.3
64.4
64.2
56.4
67.2
67.5
56.8
72.4
78.1
86.2
74.5
70.2
87.1
100.0
102.4
94.9
76.1
78.8
78.1
95.1
109.4
114.1
115.3
118.5
116.6
122.6
121.6
115.0
118.8
114.9
117.5
118.0
114.2
124.3
121.3
115.4
118.7
117.6
120.6
121.9
127.1
127.1
124.4
124.2
126.3
128.6
129.8

2
Home
goods Total

3.91
26.1
27.2
25.2
34.7
29.9
29.9
33.9
31.3
36.9
38.8
38.0
35.8
41.1
41.4
42.7
46.4
50.0
54.6
61.9
68.2
69.1
74.0
78.9
76.5
81.0
92.7
98.1
90.7
79.9
89.5
100.0
104.7
103.7
97.7
98.1
86.5
101.1
114.3
111.2
115.8
121.6
120.5
119.8
118.4
118.1
121.2
119.3
122.5
123.6
121.9
124.3
125.8
123.9
124.0
122.8
120.2
124.3
124.4
123.9
125.9
126.8
126.3
129.4
128.2

1
Includes clothing and
2
Two components— oil
3

19.25
25.5
26.8
24.0
26.0
36.1
43.3
47.0
41.1
42.0
46.1
48.0
42.9
47.2
48.4
47.8
53.2
56.3
59.6
67.3
78.4
83.4
85.8
88.1
81.8
76.6
83.8
93.6
96.6
88.5
91.5
100.0
110.3
120.4
124.7
129.9
120.2
121.7
139.6
145.8
143.6
148.9
143.5
146.0
146.2
146.4
146.3
148.1
149.7
150.2
151.2
153.0
152.2
153.1
154.3
155.3
155.9
156.5
157.7
158.5
159.4
160.1
160.4
160.2
160.4

Intermediate
Nonprod- Total 3 Dura- durable
ble
ucts
goods goods

12.94
29.9
31.6
29.9
34.8
36.5
36.3
38.8
38.7
43.9
45.9
45.9
44.9
49.6
49.9
50.9
54.0
57.0
60.7
64.6
68.6
71.4
75.5
79.6
78.4
80.8
90.2
96.0
92.6
83.6
92.1
100.0
106.9
110.8
106.9
107.3
101.7
111.2
124.7
129.3
136.2
143.4
138.8
139.9
140.9
140.3
141.8
143.3
145.0
145.3
144.9
146.1
147.3
146.5
148.1
149.4
149.9
149.6
150.4
150.0
151.6
152.3
153.1
153.8
154.8

42.28

28.8
30.0
27.3
32.7
36.2
36.7
40.8
37.7
44.6
45.7
45.7
41.1
47.4
48.1
48.1
52.4
55.8
60.3
67.2
73.2
72.5
77.3
81.9
79.0
80.2
88.4
96.8
94.8
83.2
93.0
100.0
105.9
110.3
105.3
107.7
96.7
102.8
114.2
114.3
113.8
118.2
114.9
114.9
115.2
115.9
116.3
117.2
118.5
119.4
119.7
121.2
122.5
123.7
123.0
122.1
122.5
123.6
123.9
124.5
126.4
126.5
126.5
127.1
128.0

10.09
28.5
29.3
26.3 III
33.1
37.6
38.4
44.9
29"i
38.7
47.4
33.3
34.8
47.6
34.7
47.5
34.5
40.0
47.7
39.4
48.3
40.1
41.7
47.1
45.2
52.4
47.9
55.9
52.1
60.9
57.2
69.8
61.8
76.9
74.2
62.9
69.1
78.6
82.7
74.8
75.2
75.1
75.4
78.4
86.4
85.2
92.7
97.4
93.2
94.6
82.9
78.8
93.9
90.8
100.0
100.0
105.6
108.8
114.4
109.3
103.4
106.1
107.1
109.7
96.6
94.2
106.2
103.7
111.4
121.5
112.1
121.7
117.5
120.0
125.9
125.0
121.4
120.5
120.8
121.3
122.3
121.5
122.2
124.1
123.9
122.6
124.1
124.0
127.6
125.2
128.3
125.5
128.6
126.4
128.2
128.7
130.2
129.6
132.5
132.0
129.9
131.8
128.1
131.4
131.3
130.1
132.7
131.1
130.1
134.8
134.9
130.1
132.8
136.8
136.6
133.1
132.6
137.9
133.8
138.8
139.7
134.8

20.50

consumer staples, not shown separately.
and gas well drilling and manufactured homes— are included in total equipment, but not in detail shown.
Includes energy materials, not shown separately.
Source: Board of Governors of the Federal Reserve System.




363

TABLE B-50.—Industrial production indexes, selected manufactures, 1947-88
[1977=100; monthly data seasonally adjusted]
Nondurable manufactures

Durable manufactures
Year or month

Primary
metals
Total

1977 proportion...
1947 . .,
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957 ..
1958
1959
1960
1961
1962
1963 ....
1964
1965
1966
1967
1968
1969
1970
1971
1972
:Z
1973 .
1974
1975 .
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1987- Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oc?
Nov
Dec
1988- Jan
Feb
Mar

May"!!"!!"!"
June
July

Aug::::::..:::::
Sept
Oct *
Nov*

iron
and
steel

Fabri- Noncated elec- Electrical
metal trical machinprod- machinery
ery
ucts

Transportation
equipment
Total

9.13
26.6
29.0
29.2

Lumber Apparel Textile Printing Chemicals
and
mill
and
prod- prod- publish- and Foods
Motor
ucts
prodvehicles products
ing
ucts
ucts
and
parts

3.49 6.46
5.33
57.8 70.4 40.4
60.1 73.6 41.2
50.5 62.9 37.2
63.6 77.5 45.5
69.2 86.6 48.6
63.2 76.2 47.4
71.6 87.9 53.5
57.9 68.3 48.2
75.3 90.8 55.0
74.8 89.1 55.8
71.6 85.9 57.2
51.3
56.8 64.7
66.4 74.5 57.6
66.1 75.7 57.6
64.9 72.3 56.2
69.6 75.3 61.1
75.1 82.1 63.1
84.7 93.4 67.0
93.2 102.4 73.6
78.8
98.9 105.5
91.4 97.5 82.5
94.7 100.7 86.9
101.9 109.7 88.4
94.8 102.1 81.9
89.9 93.4 81.5
100.7 103.8 89.4
114.3 118.2 99.4
110.7 114.5 95.4
88.2 92.0 82.7
98.7 101.4 91.6
100.0 100.0 100.0
107.0 107.5 105.7
108.5 108.0 109.4
90.4 86.3 101.8
95.0 92.5 101.6
65.8 57.5 86.6
73.0 66.1 89.1
82.3 73.4 102.6
80.4 70.4 107.1
75.1 63.4 108.0
81.3 70.6 111.0
72.8 59.5 108.4
75.1 62.3 108.3
77.0 65.4 110.5
76.1 65.0 109.9
77.0 65.7 108.5
78.8 68.3 111.1
81.4 70.9 111.1
85.1 76.0 110.1
84.5 74.6 111.1
90.6 82.0 113.5
90.2 79.7 113.6
90.6 81.9 115.8

9.54
26.7
26.8
22.9
25.7
32.6
35.5
36.9
31.6
34.6
39.7
39.6
33.2
38.8
39.0
37.9
42.5
45.4
51.7
58.2
67.6
68.9
69.5
75.2
72.8
67.6
78.5
91.7
97.7
84.5
88.8
100.0
111.7
122.6
123.3
129.8
115.6
118.3
141.8
146.2
145.0
152.7
143.4
145.5
148.5
150.4
149.7
151.8
155.3
154.3
156.6
158.0
157.2
161.0

7.15
14.5
15.1
14.1
19.4
19.5
22.3
25.6
22.8
26.1
28.3
28.1
25.7
31.2
33.8
35.9
41.3
42.4
44.9
53.5
64.2
64.5
68.1
72.5
69.3
69.6
79.7
90.7
89.8
77.2
86.8
100.0
112.9
125.7
130.3
134.1
128.4
143.8
170.5
168.3
165.7
172.3
170.4
171.0
168.5
168.4
171.1
170.5
172.5
174.3
173.4
175.5
175.6
175.9

34.9
38.9
45.2
56.8
49.4
56.8
55.1
59.0
46.5
52.7
54.6
51.3
59.3
65.1
66.8
79.4
85.1
.83.2
90.4
89.7
75.3
81.5
87.0
99.1
90.1
81.0
92.2
100.0
106.3
108.3
96.9
95.1
87.6
99.2
112.2
122.8
127.5
129.2
129.0
132.7
132.2
127.8
129.4
126.5
127.6
128.1
125.5
132.0
130.4
128.1

5.25
28.8
31.2
32.0
41.2
37.8
32.4
40.8
35.1
47.1
38.2
40.1
29.6
38.5
43.4
38.1
46.3
51.3
52.7
67.3
66.2
58.2
69.7
70.0
56.3
70.6
77.1
89.8
77.5
65.7
86.5
100.0
104.6
95.9
71.1
71.6
66.8
85.8
104.4
111.9
111.5
111.8
112.0
117.7
116.5
109.8
112.0
107.4
109.4
109.1
105.6
116.0
114.0
110.2

77.8
77.4
74.2
74.5
78.6
74.2
80.2
78.9
81.4
83.7

162.9
163.6
164.6
167.2
170.3
171.2
173.1
174,1
175.0
175.3
176.2

177.4
177.8
176.6
178.7
179.1
179.5
181.5
182.2
181.7
183.1
182.8

128.6
128.4
130.0
130.4
133.1
132.8
131.9
131.8
132.6
134.3
135.4

109.7
109.3
113.0
114.8
119.6
119.1
116.6
117.5
118.5
121.4
122.8

86.5
86.4
85.1
85.3
89.2
87.5
91.5
90.8
93.0
94.3
94.8

117.1
117.6
118.8
118.8
119.8
120.4
121.7
122.1
122.6
122.9
124.3

Source: Board of Governors of the Federal Reserve System.




364

2.30
47.2
49.1
43.3
52.7
52.5
51.8
54.8
54.5
60.8
60.1
55.2
56.0
63.6
59.8
62.6
66.1
69.2
74.3
77.2
80.1
79.3
81.6
81.5
81.1
83.2
95.3
95.6
86.8
80.8
91.9
100.0
102.4
102.0
92.9
90.1
82.8
100.2
109.1
H4.3
124.1
130.3
128.5
129.6
128.9
127.8
130.3
131.1
132.8
131.1
126.9
129.8
134.0
133.6
136.3
139.0
137.8
138.0
139.8
136.4
136.6
133.8
133.5
136.9

2.79
47.0
49.1
48.6
52.3
51.3
54.0
54.7
54.1
59.7
61.1
60.9
59.2
65.2
66.5
66.9
69.6
72.5
75.0
79.3
81.3
80.9
82.9
85.6
82.2
83.2
88.3
89.0
85.0
77.6
91.5
100.0
103.1
98.3
97.3
96.1
87.3
95.3
102.7
100.4
103.1
107.4
106.1
106.5
105.4
105.3
106.4
107.7
109.7
108.4
107.6
108.0
109.4
107.8
108.7
108.5
108.7
109.2
108.6
109.3
109.4
108.9
109.6

2.29
38.5
41.1
38.0
43.2
42.8
42.4
43.5
40.7
46.4
47.7
45.5
44.8
50.7
49.8
51.2
54.7
56.7
61.2
66.6
70.7
70.7
78.9
83.0
81.2
85.7
93.9
97.8
89.0
84.8
94.2
100.0
102.8
104.4
100.8
98.1
89.2
100.9
104.2
102.2
109.2
115.9
109.2
110.8
112.6
116.6
115.7
117.2
118.3
119.8
118.2
116.8
117.3
118.2

4.54
34.3
36.0
37.0
38.8
39.5
39.4
41.2
42.9
47.2
50.2
51.9
50.7
54.1
56.3
56.5
58.6
61.7
65.5
69.7
75.0
79.1
80.4
84.3
82.0
82.7
88.2
90.6
89.2
83.5
91.2
100.0
107.8
112.7
115.1
118.6
120.2
129.8
146.5
151.4
160.9
172.1
166.3
164.4
167.6
169.2
171.4
174.1
174.0
174.7
174.9
175.2
175.7
176.9

116.2
115.3
117.0
117.3
114.6
114.3
117.1
116.4
115.7
115.1

177.5
178.7
180.4
181.8
180.7
182.3
184.9
186.7
188.7
189.3
189.2

8.05
10.4
11.3
11.1
13.9
15.7
16.5
17.8
18.1
21.1
22.6
23.9
24.7
28.8
29.9
31.4
34.8
38.1
41.7
46.5
50,7
53.0
59.6
64.5
67.1
71.4
80.3
87.8
91.0
82.9
92.8
100.0
106.8
111.4
106.4
112.6
103.8
114.0
121.6
126.4
132.0
140.2
136.4
135.7
135.3
137.3
138.1
139.3
140.8
142.3
142.4
141.5
144.4
147.9

7.96
41.9
41.5
41.9
43.4
44.3
45.2
46.1
47.0
49.8
52.6
53.4
54.7
57.4
59.0
60.7
62.6
64.9
67.8
69.4
72.0
75.2
77.2
79.8
81.0
83.6
88.0
89.8
91.0
90.4
95.6
100.0
104.3
106.7
111.4
113.7
114.9
120.4
126.9
130.5
134.4
137.8
134.6
136.4
137.3
136.0
137.4
137.7
138.5
138.8
139.5
138.0
138.9
140.1

147.9
145.4
146.4
148.9
149.1
150.5
153.4
154.8
155.5
156.5

141.2
141.9
141.1
140.3
141.0
141.3
143.3
143.3
143.2
144.3

TABLE B-51.—Capacity utilization rates, 1948-88
[Percent; monthly data seasonally adjusted]
Manufacturing
Year or month

Total
industry

Total

Durable
goods

Nondurable
goods

Primary
processing

Advanced
processing

Mining

Utilities

Industrial
materials

80.0
73.2

1948
1949

82.5
74.2

87.3
76.2

1950
1951
1952
1953
1954

828
858
854
893
801
870

885

798

849

859

1955
1956
1957
1958
1959

90.2

89.4

806
920
89.4

86.1

847
754
830
798
779

836
750
816
801
773
814

1960
1961
1962
1963
1964

81.5
83.8

83.5

1965
1966.
1967
1968
1969

87.1
87.4
87.4

1970
1971
1972
1973
1974

856
895
911

878
910

83.4

89.3

800
842
84.4

831
749
811
805
772
816
83.4

846
888

86.7
87.0
86.7

87.0
867
86.1

86.7
87.7
88.0

91.4
85.3
86.9
87.7

91.1
87.6
87.0
86.1

82.9
846
87.0

93.2
939
95.6

85.1
868
88.1

80.9
790
84.0
87.9
83.6

79.2
77.4
82.8
87.0
82.6

76.1
73.3
79.7
86.2
81.6

83.9
83.5
87.4
88.1
84,2

80.9
79.5
86.4
91.3
85.4

78.3
76.1
81.1
85.1
81.5

89.0
87.3
90.2
91.4
91.1

95.1
937
94.5
92.8
86.8

81.8
804
86.0
91 1
86.1

1975
1976
1977
1978
1979..

741
78.8
82.4
84.8

723
77.4
81.4
84.2

696
74.8
79.4
82.9

76.3
81.4
84.5
86.1
85.3

72.2
79.3
83.1
86.0
86.6

72.6
76.8
80.5
83.1
83.5

89.2
89.7
89.9
90.3
90.7

843
85.3
85.1
85.0

734
80.3
84.1
86.3

1980
1981
1982
1983
1984

80.9

79.3

77.9

93.2

85.4

81.1

70.3

66.9
78.7

71.7
74.0
80.3

83.4
77.9
84.0

81.4

80.5

77.9
78.1
67.5
73.9
80.9

80.0

72.1

81.3
80.6
75.4
79.4
83.3

1985
1986
1987

80.4
79.4

80.1
79.7

78.5
77.2

784

82.4
83.5
84.9

80.9
81.8
84.6

79.7
78.8
79.4

1987: Jan
Feb
Mar
Apr
May

79.2
79.7
79.7
79.6
79,9
80.3

79.6
80.0
80.3
80.2
80.4
80.8

76.9
77.6
77.9
77.5
77.6
77.8

83J
83.6
83.9
84.2
84.6
85.2

82.7
82.4
83.1
83.5
83.2
84.0

Julv

81.1
81.4
8U
8L9
82.1
82.4

81.5
81.5
81.3
82.0
82.2
82.6

78.6
78.6
78.4
80.1
79.9
80.1

85.9
85.8
85.5
84.9
85.6
86.4

82.5
82.4
82.4
82.7
82.9
83.0

82.7
82.6
82.7
82.9
83.3
83.3

80.3
80.5
80.6
80.9
81.8
81.7

83.7
83.8
83.7
84.0
84.2

84.0
84.0
84.0
84.3
84.5

82.3
82.3
82.5
82.9
83.1

852

799
746
81.0

807

Aug:::::::
Sept
Oct
Nov
Dec

1988: Jan
Feb
Mar
Aor

SEE
J

4::=
Sfci
Nov "

846

782
739

811

841
767
703

929

842

871

812
71.8

800

753

82.4
76.4
77.8

82.3
79.1
79.5

80.3
78.6

78.2
79.0
79.1
78.7
79.2
79.2

76.1
75.8
75.5
75.9
76.5
76.6

78.5
78.8
78.2
76.8
79.2
79.0

78.7
78.7
78.7
79.1
79.3
79.8

85.4
85.3
85.1
86.2
87.0
87.6

79.8
79.9
79.5
80.1
80.0
80.3

76.8
78.2
79.1
80.6
81.5
81.5

80.2
81.3
80.0
80.5
81.2
80.0

80.6
81.1
81.2
82.1
82.9
83.6

86.2
85.7
85.8
85.9
85.4
85.5

87.1
86.6
86.9
86.9
87.0
86.6

80.7
80.7
80.7
81.2
81.7
81.7

80.7
79.5
80.6
82.3
80.8
81.2

82.4
82.6
81.0
79.3
79.7
80.8

83.0
82.3
82.4
82.9
83.0
83.2

86.4
86.4
86.2
86.4
86.5

87.8
87.4
87.2
87.6
88.0

82.2
82.4
82.5
82.7
82.9

82.5
82.2
82.2
81.6
82.2

81.5
83.9
80.3
80.8
81.0

84.4
84.3
84.1
84.4
84.8

Source: Board of Governors of the Federal Reserve System.




783

856

365

83.0

82.0

805

TABLE B-52.—New construction activity, 1929-88
[Value put in place, billions of dollars; monthly data at seasonally adjusted annual rates]
Public construction

Private construction
Year or month

Total
new
construction

Nonresidential buildings and other
construction l

Residential
buildings1
Total
Total 2

New
housing
units

Total

Commercial 3

1929
1933
1939
1940
1941
1942
1943
1944

10.8
2.9
8.2
8.7
12.0
14.1
8.3
5.3

8.3
1.2
4.4
5.1
6.2
3.4
2.0
2.2

3.6
.5
2.7
3.0
3.5
1.7
.9
.8

3.0
.3
2.3
2.6
3.0
1.4
.7
.6

4.7
.8
1.7
2.1
2.7
1.7
1.1
1.4

1.1
.1

1945
1946

5.8
14.3

3.4
12.1

1.3
6.2

.7
4.8

2.1
5.8

New series
1947
1948
1949

20.0
26.1
26.7

16.7
21.4
20.5

9.9
13.1
12.4

7.8
10.5
10.0

1950
1951
1952
1953
1954

33.6
35.4
36.8
39.1
41.4

26.7
26.2
26.0
27.9
29.7

18.1
15.9
15.8
16.6
18.2

46.5
47.6
49.1
50.0
55.4

34.8
34.9
35.1
34.6
39.3

54.7
56.4
60.2
64.8

1964
1965
1966
1967
1968
1969

Indus- Other*
trial

Total

Federal State and
local6

0.2

2.3
1.1
3.1
2.4
2.0
1.3

'.2
.2

2.6
.5
1.2
1.3
1.5
1.2
.9
1.1

2.5
1.6
3.8
3.6
5.8
10.7
6.3
3.1

',B
1.2
3.8
9.3
5.6
2.5

.2
1.2

.6
1.7

1.3
3.0

2.4
2.2

1.7
.9

M

6.9
8.2
8.0

1.0
1.4
1.2

1.7
1.4
1.0

4.2
5.5
5.9

3.3
4.7
6.3

,8
1.2
1.5

2.5
3.5
4.8

15.6
13.2
12.9
13.4
14.9

8.6
10.3
10.2
11.3
11.5

1.4
1.5
1.1
1.8
2.2

1.1
2.1
2.3
2.2
2.0

6.1
6.7
6.8
7.3
7.2

6.9
9.3
10.8
11.2
11.7

1.6
3.0
4.2
4.1
3.4

5.2
6.3
6.6
7.1
8.3

21.9
20.2
19.0
19.8
24.3

18.2
16.1
14.7
15.4
19.2

12.9
14.7
16.1
14.8
15.1

3.2
3.6
3.6
3.6
3.9

2.4
3.1
3.6
2.4
2.1

7.3
8.0
9.0
8.8
9.0

11.7
12.7
14.1
15.5
16.1

2.8
2.7
3.0
3.4
3.7

8.9
10.0

12.1
12.3

38.9
39.3
42.3
45.5

23.0
23.1
25.2
27.9

17.3
17.1
19.4
21.7

15.9
16.2
17.2
17.6

4.2
4.7
5.1
5.0

2.9
2.8
2.8
2.9

8.9
8.7
9.2
9.7

15.9
17.1
17.9
19.4

3.6
3.9
3.9
4.0

12.2
13.3
14.0
15.4

72.6

52.4

30.5

24.1

21.8

6.8

3.6

11.5

20.2

3.7

16.5

78.5
81.8
83.5
93.2
100.5

56.6
58.0
58.1
65.7
72.7

30.2
28.6
28.7
34.2
37.2

23.8
21.8
21.5
26.7
29.2

26.3
29.4
29.4
31.6
35.5

8.1
8.1
8.0
9.0
10.7

5.1
6.6
6.0
6.0
6.8

13.1
14.7
15.4
16.6
17.9

21.9
23.8
25.4
27.4
27.8

3.9
3.8
3.3
3.2
3.2

18.0
20.0
22.1
24.2
24.6

1970
1971
1972
1973
1974

101.3
117.9
133.9
147.4
147.8

73.4
88.2
103.9
115.0
109.6

35.9
48.5

!?i
56.0

27.1
38.7
50.1
54.6
43.4

37.5
39.7
43.2
49.9
53.7

11.1
13.0
15.4
17.7
17.6

6.5
5.4
4.7
6.2
7.9

19.9
21.3
23.1
26.0
28.2

27.9
29.7
30.0
32.3
38.1

3.1
3.8
4.2
4.7
5.1

24.8
25.9
25.8
27.6
33.0

1975
1976 ....
1977
1978
1979

144.3
163.0
188.0
225.9
252.4

102.6
122.1
148.6
178.4
200.7

51.6
68.3
92.0
109.8
116.4

36.3
50.8
72.2
85.6
89.3

51.0
53.8
56.6
68.6
84.3

13.9
13.7
15.7
19.7
27.1

8.0
7.2
7.7
11.0
15.0

29.1
33,0
33.2
37.9
42.3

41.7
40.9
39.4
47.5
51.7

6.1
6.8
7.1
8.1
8.6

35.6
34.1
32.4
39.3
43.1

1980 ....
1981
1982
1983
1984

251.7
260.2
246.6
281.3
328.6

193.3
203.6
192.9
227.5
271.0

100.4
99.2
84.7
125.5
153.8

69.6
69.4
57.0
94.6
113.8

92.9
104.4
108.2
102.0
117.1

32.9
38.0
41.4
41.0
54.9

13.8
17.0
17.3
12.9
13.7

46.2
49.4
49.5
48.1
48.5

58.5
56.5
53.7
53.8
57.7

9.6
10.4
10.0
10.6
11.2

48.8
46.1
43.7
43.2
46.4

1985 ... .
1986
1987

355.7
386.1
398.9

291.7
314.7
323.8

158.5
187.1
194.8

114.7
133.2
139.9

133.2
127.5
129.0

66.9
64.2
62.8

15.8
13.7
13.7

50.5
49.5
52.5

64.1
71.4
75.0

12.0
12.4
14.1

52.1
59.0
61.0

1955
1956
1957
1958
1959

..

I960
1961
1962
1963

'.3
A
.2
.0
.1

0.9
.2
.3
.4
.8

!e

n.i

New series

See next page for continuation of table.




366

TABLE B-52.—New construction activity, 1929-88—Continued
[Value put in place, billions of dollars; monthly data at seasonally adjusted annual rates]
Private construction
Year or month

Total
new
construetion : Total

Nonresidential buildings and other
construction *

Residential
buildings1
Total2

1987: Jan
Feb
Mar...
Apr
May
June

Public construction

New
housing
units

Total

Commer- 3

cial

Indus- Other4
trial

Total

Federal State and
local"*

389.8
393.7
394.3
396.3
397.9
392.6

315.7
319.5
319.6
321.5
322.6
319.5

192.9
193.3
196.4
197.2
195.8
193.5

138.1
138.9
139.5
140.2
139.3
138.6

122.7
126.1
123.2
124.3
126.9
126.0

59.4
62.2
60.8
61.0
62.5
61.2

12.8
12.8
12.3
12.1
13.6
13.8

50.5
51.1
50.1
51.2
50.8
51.0

74.1
74.3
74.7
74.8
75.2
73.0

13.1
11.5
12.8
12.6
14.9
14.1

61.0
62.7
61.8
62.2
60.3
59,0

398.9
398.3
405.4
400.8
407.1
410,9

323.3
325J
327.1
325.9
331.5
331.6

193.7
193.1
194.8
194.5
195.6
195.8

138.7
138.7
140.0
140.7
142.3
142.8

129.7
132.5
132.3
131.4
135.9
135.8

63.1
65.5
63.7
63.9
66.5
63.3

13.9
14.3
15.3
14.0
14.5
14.1

52.6
52.8
53.3
53.5
54.9
58.4

75.6
72.6
78.2
74.9
75.6
79.2

15.3
14.1
17.2
13.0
14.3
15.8

60.2
58.5
61.1
61.9
61.2
63.5

1988: Jan
Feb
Mar
Apr
May
June

395.3
392.5
403.6
396.2
398.5
395.7

321.6
317.8
324.3
318.5
320.2
317.7

195.2
192.1
195.6
192.0
190.4
188.1

140.8
138.0
139.2
138.5
137.7
136.8

126.4
125.7
128.7
126.5
129.8
129.6

60.7
59.9
61.8
63.0
64.2
63.8

13.5
13.5
14.5
13.8
13.9
13.7

52.2
52.3
52.3
49.7
51.8
52.2

73.7
74.7
79.3
77.7
78.3
78.0

12.4
11.8
14.1
12.6
12.3
14.0

61.4
62.9
65.2
65.2
65.9
64.0

July
Aug
Septp
Oct

401.8
402,8
405.5
409.2

322.5
326.2
326.5
328.4

192.8
195.8
196.9
198.9

136.4
137.2
138.5
140.0

129.7
130.4
129.6
129.4

63.1
62.6
61.5
60.5

13.2
12.9
12.7
13.7

53.4
54.9
55.4
55.2

79.3
76.7
79.0
80.9

13.2
13.5
14.6
13.4

66.1
63.2
64.4
67.5

July

Aug..::""::
Sent
Oct..:::::::::::::::::::::::::::"
Nov
Dec

1
Beginning 1960, farm residential buildings included in residential buildings; prior to I960, included in nonresidential buildings and
other construction.
2
Includes residential improvements, not shown separately. Prior to 1964, also includes nonhousekeeping units (hotels, motels, etc.)
3
Office buildings, warehouses, stores, restaurants, garages, etc., and, beginning 1964, hotels and motels; prior to 1964 hotels and
motels are included in total residential.
4
Religious, educational, hospital and institutional, miscellaneous nonresidential, farm (see also footnote 1), public utilities, and all
other private.
5
Includes Federal grants-in-aid for State and local projects.
Source: Department of Commerce, Bureau of the Census.




367

TABLE B-53.—New housing units started and authorized, 1959-88
[Thousands of units]
New private housing units authorized 2

New housing units started
Private and public
Year or month

1

Total
(farm and Nonfarm
nonfarm)

Type of structure

Private (farm and nonfarm) '
Type of structure
Total

1 unit

2 to 4
units

Total

5 units
or more

1 unit

2 to 4
units

5 units
or more

1959

1,553.7

1,5:U.3

1,517.0

1,234.0

28 3.0

1,208.3

938.3

77,1

192.9

I960
1961
1962
1963
1964

1,296.1
1,365,0
1,492.5
1,634.9
1,561.0

1,2' 4.0
1,3: 6.8
i,« 8.7
1,61 4.8
1,5: 4.0

1,252.2
1,313.0
1,462.9
1,603.2
1,528.8

994.7
974.3
991.4
1,012.4
970.5

25 7.4
33 8.7
47 1.5
59 0.8
108.4
450.0

998.0
1,064.2
1,186.6
1,334.7
1,285.8

746.1
722.8
716.2
750.2
720.1

64.6
67.6
87.1
118.9
100.8

187.4
273.8
383.3
465.6
464.9

1965
1966
1967
1968
1969

1,509.7
1,195.8
1,321.9
1,545.4
1,499,5

1,4* 7.5

1,1" 2.8
1,2? 8.8

1,472.8
1,164.9
1,291.6
1,507.6
1,466.8

963.7
778.6
843.9
899.4
810.6

86.6
61.1
71.6
80.9
85.0

422.5
325.1
376.1
527.3
571.2

1,239.8
971.9
1,141.0
1,353.4
1,323.7

709.9
563.2
650.6
694.7
625.9

84.8
61.0
73.0
84.3
85.2

445.1
347.7
417.5
574.4
612.7

1970
1971
1972
1973
1974

1,469.0
2,084.5
2,378.5
2,057.5
1,352.5

(::;

1,433.6
2,052,2
2,356.6
2,045.3
1,337.7

812.9
1,151.0
1,309.2
1,132.0
888.1

84,8
120.3
141.3
118.3
68.1

535.9
780.9
906.2
795.0
381.6

1,351.5
1,924.6
2,218.9
1,819.5
1,074.4

646.8
906.1
1,033.1
882.1
643.8

616.7
88.1
132.9
885.7
148.6 1,037.2
117.0 820.5
64.3 366.2

1975
1976
1977
1978
1979

1,171.4
1,547.6
2,001.7
2,036.1
1,760.0

1,160.4
1,537.5
1,987.1
2,020.3
1,745.1

892.2
1,162.4
1,450.9
1,433.3
1,194.1

64.0
85,9
121.7
125.0
122.0

204.3
289.2
414.4
462.0
429.0

939.2
1,296.2
1,690.0
1,800.5
1,551.8

675.5
893.6
1,126.1
1,182.6
981.5

63.9
93.1
121.3
130.6
125.4

199.8
309.5
442.7
487.3
444.8

1980
1981
1982
1983
1984

1,312.6
1,100.3
1,072.1
1,712.5
1,755.8

1,292.2
1,084.2
1,062.2
1,703.0
1,749.5

852.2
705.4
662.6
1,067.6
1,084.2

109.5
91.1
80.0
113.5
121.4

330.5
287.7
319.6
522.0
544.0

1,190.6
985.5
1,000.5
1,605.2
1,681.8

710.4
564.3
546.4
901.5
922.4

114.5
101.8
88.3
133.6
142.6

365,7
319.4
365.8
570.1
616.8

1985
1986
1987

1,745.0
1,807.1
1,622.7

1,741.8
1,805.4
1,620.5

1,072.4
1,179.4
1,146.4

93.4
576.1
84.0 542.0
65.3 408.7
Seasonally adjusted

1,733.3
956.6
1,769.4
1,077.6
1,024.4
1,534.8
annual rates

120.1
108.4
89.3

656.6
583.5
421.1

1,804
1,809
1,723
1,635
1,599
1,583

1,245
1,285
1,206
1,201
1,125
1,086

79
74
85
66
65
85

480
450
432
368
409
412

1,692
1,688
1,682
1,596
1,504
1,539

1,097
1,201
1,124
1,053
1,008
1,022

97
104
94
97
92
87

498
383
464
446
404
430

1,594
1,583
1,679
1,538
1,661
1,399

1,142
1,109
1,211
1,105
1,129
1,035

59
58
49
67
51
51

393
416
419
366
481
313

1,510
1,514
1,501
1,453
1,459
1,372

994
1,014
983
962
971
957

89
83
86
81
83
83

427
417
432
410
405
332

1,382
1,519
1,529
1,584
1,393
1,465

1,016
1,102
1,172
1,093
1,004
1,092

53
59
57
58
52
62

313
358
300
433
337
311

1,248
1,429
1,476
1,449
1,436
1,493

918
1,003
1,030
960
982
1,002

70
75
80
75
76
79

260
351
366
414
378
412

1,477
1,461
1,467
1,542
1,563

1,068
1,078
1,045
1,142
1,151

51
61
61
62
64

358
322
361
338
348

1,420
1,464
1,394
1,516
1,516

984
1,022
974
1,027
1,046

79
74
75
83
83

357
368
345
406
387

1987: Jan
Feb
Mar
Apr
May
June

1,52 1.4
1,4( 2.3

Ii

3

3

3

i
3

105.1
102.8
141.3
159.6
158.3
163.2

July
Aug
Sept
Oct
Nov
Dec

152.7
143.9
152.3
139.1
118.9
85.4

1988- Jan
Feb
Mar
Apr
May
June

3

3

137.2
136.8
131.4
136.6
112.8

!

3

78.2
90.3
129.0
153.4
140.3
150.3

July
Aug
Sept
Oct *
Nov "

)

3
3

1

3

I
I

3
3
3
1

3

a\

1

Units in structures built by private developers for sale upon completion to local public housing authorities under the Department of
Housing and Urban Development "Turnkey" program are classified as private housing. Military housing starts, including those financed
with mortgages insured by FHA under Section 803 of the National Mousing Act, are included in publicly owned starts and excluded from
total private starts.
2
Authorized by issuance of local building permit: in 17,000 permit-issuing places beginning 1984; in 16,000 places for 1978-83; in
14,000 places for 1972-77; in 13,000 places for 1967-71; in 12,000 pfaces for 1963-66-, and in 10,000 places prior to 1963.
3
Not available separately beginning January 1970,
Source: Department of Commerce, Bureau of the Census.




368

TABLE B-54.—Business expenditures for new plant and equipment, 1947-89
[Billions of dollars; quarterly data at seasonally adjusted annual rates]

Addenda

Industries surveyed quarterly
Manufacturing
Year or quarter

1947
1948
1949
1950
1951
1952
1953
1954.
1955
1956
1957
1958
1959

All
industries

20.11
22.78
20.28
21.56
26.81
28.16
29.96
28.86
30.94
37.90
40.54
33.84
35.88
39.44
1960
1961
38.34 j
1962
40.86
43.67
1963
1964
51.26
59.52
1965
1%6
70,40
1967
72,75
76.42
1968
85.74
1969
1970
9U1
1971
92.91
1972
103.40
1973
120.03
1974
139.67
142.42
1975
158.44
1976
1977.!
184.82
217.76
1978
1979
254.96
282.80
1980
315.22
1981
1982
310,58!
304.78
1983
354.44
1984
1985
387.13
379.47
1986
19871!!
1 389.67
430.17
1988 *
1989*
455.96
376.73
1987- 1
II
380,66
394.54
1U
IV „
406,82
412.02
1988- 1
II
426.94
Ill
436.01
)V *
445.73
466.76
1989:1*
11 *
473.55

Total

8.73
9.25
7.32
7.73
11.07
12,12
12.43
12.00
12.50
16,33
17.50
12.98
13.76
16.36
15.53
16.03
17.27
21.23;
25.41
31.37
32.25
32.34
36.27
36,99
33.60
35.42
4235
52.48
53.66
58.53'
67.48
78.58
95.92
11233
126.54
120.68
116.20
138.82
153.48
142.69
145.90
164,54
171,67
141.50
141.71
148.20
152.21
158.60
161.69
168.91
168.97
177,81
179.48

Non manufacturing

Dura- Nonble durable Total '
goods goods

339
3.54
2.67
3.22
5.12!
5.75
5.71
5,49
5.87
8.19
8.59
6.21
6,72
8,28
7.43
7.81
8.64
10.98
13.49
17.23
17.83
17.93
19,97
19.80
16.78
18.22
22.63
26,77
2537
27.50
32.77'
39.46
48.50
5536
59.81
55,35'
53.08
66.24
73.27
69.14
71.01
77.75
79.29
70.79
69.05
71.96
72.28
75.70
76.87
79,48
78.97
84.25
84.00

5.34
5.71
4.64
4.51
5.95;

6.37
6.72
6.51
6.62
8.15
8.91
6.77
7.04
8.08
8.10
8.22
8.63
10,25
11.92
14.15
14.42
14.40
16.31
17.19
16.82
17.20
19.72
25.71:

28.28
31.03
34.71
39.13
47.42
56.96
66.73
65.33
63.12
72.58
80.21
73.56;
74.88
86.79
9238
70.70
7£66
76.24
79.92
82.90
84.82
89.43
90.00
93.56
95.48

1138
13.53
12.96
13.83
15.74
16.04
17.53
16.85
18.44
21.57
23.04
20.86
22.12
23.08
22,80
24.83
26.40
30.04
34.12
39.03
40.50
44.08
49.47
54.92
59.31
67,98
77.67
87.19
88.76
99.91
117.34
139.18
159.04
170.47
188.68
189.89
188.58
215,61
233.65
236.78
243.78
265.63
284.30
235.23
238.95
24634
254.61
253.43
265.25
267.10
276.76
288.95
294.07

ComMin- Trans- Public mercial
and
ing porta- utilition ties other
0.69
.93
.88
.84
1.11
1.21
1.25
1.29
1.31
1.64
1.69
1.43
135
1.29
1.26
1.41
1.26
1.33
1.36
1.42
1.38
1.44
1.77
2.02
2.67
2.88
3.30
4.58
6.12
7.63
9.81
11.22
12.81
15.99
2139
20.05
15.19
16.86
15.88
11.22
1139
12.57
11.22
1038
11.02
11.81
1232
12.59
13.26
12.47
11.97
11.62
11.81

2.69
3.17
2.80
2.87
3.60
3.56
3.58
2.91
3.10
3.56
3.84
2.72
3.47
3.54
3.14
3.59
3.64
4.71
5.66
6.68
6.57
6.91
7.23
7.17
6.42
7.14
8.00
9.16
9.95
11.10
12.20
1336
16.05
16.60
15.84
14.79
13.97
16.52
18.02
18.80
18.85
21.36
24.81
18.77
18.12
19.19
19.34
20.43
20.72
22.17
22.12
26.90
25.83

1.64
2.67
3.28
3.42
3.75
3.96
4.61
4.23
4.26
4.78
5.95
5.74
5.46
5.40
5.20
5.12
5.33
5.80
6.49
7.82
9.33
10.52
11.70
13.03
14.70
16.26
17.99
19.96
20.23
22.90
27.83
31.50
35.63
37.74
41.21
45.43
44.96
47.48
48.81

4638
44.88
46.39
47.15
43.95
43.95
45.29
46.38
44.61
45.43
46.70
48.80
49.35
50.51

6.38
6.77
6.01
6.70
7.29
7.31
8.09
8.42
9.77
11.59
11.56
10.97
11.84
12.86
13.21
14.71
16.17
18.20
20.60
23.11
23.22
25.22
28.77
32.71
35.52
41.69
48.39
53.49
52.47
58.29
67.51
83.09
94.56
100.14
110.24
109.63
114.45
134.75
150.94
160.38
168.65
185.32
201.12
162.13
165.86
170.05
176.56
175.79
185.83
185.76
193.87
201.07
205.92

Nonmanufacturing
Total W arm
nonfacSur- Surfarm
veyed
busi-2 tor- Total quar- annuing
ness
terly ally 3
22.27
25.97
24.03
25.81
31.38
32.16
34.20
33.62
37.08
45.25
48.62
42.55
45.17
48.99
48.14
51.61
53.59
62.02
70.79
82.62
83.82
88.92
100.02
106.15
109.18
120.91
139.26
159.83
162.60
179.91
208.15
245.34
284.94
314.47
349.26
347.47
343.35
398.99
431.94
427.23
440.66

8.73
9.25
732
7.73
11.07
12.12
12.43
12.00
12.50
1633
17.50
12.98
13.76
1636
15.53
16.03
17.27
21.23
25.41
31.37
32.25
3234
36.27
36.99
33.60
35.42
4235
52.48
53.66
58.53
67.48
78.58
95.92
112.33
126.54
120.68
116.20
138.82
153.48
142.69
145.90
164.54
171.67
141.50
141.71
148.20
152.21
158.60
161.69
168.91
168.97
177.81
179.48

11.38
13.53
12.96
13.83
15.74
16.04
17.53
16.85
18.44
21.57
23.04
20.86
22.12
23.08
22.80
24.83
26.40
30.04
34.12
39.03
40.50
44.08
49.47
54.92
5931
67.98
77.67
87.19
88.76
99.91
117.34
139.18
159.04
170.47
188.68
189.89
188.58
215.61
233.65
236.78
243.78
265.63
284.30
235.23
238.95
246.34
254.61
253.43
»"•"»"» 265.25
267.10
276.76
288.95
294.07
13.54
16.73
16.72
18.08
2031
20.04
21.77
21.62
24.58
28.91
31.11
29.57
31.41
32.63
32.60
35.58
3633
40.80
4539
51.25
51.57
56.58
63.74
69.16
75.58
85.49
96.91
10735
108.95
12138
140.67
166.76
189.02
202.15
222.72
226.79
227.15
260.16
278.46
284.54
294.77

2.16
3.19
3.76
4.25
4.57
4.00
4.23
4.76
6.14
735
8.08
8.72
9.29
9.55
9.80
10.75
9.93
10.76
11.27
12.22
11.07
12.50
14.27
14.24
16.26
17.51
19.24
20.16
20.19
21.47
23.33
27.58
29.98
31.68
34.04
36.89
38.56
44.55
44.81
47.75
50.99

1
Excludes forestry, fisheries, and agricultural services; professional services; social services and membership organizations; and real
estate, which, effective with the April-May 1984 survey, are no longer surveyed quarterly. Se